# News & Current Events > Economy & Markets >  Why the modest inflation?

## eugenekop

Why inflation is so modest with zero interest rates and after Q1 and Q2?

My own explanation (which might be bogus) is that government bonds are interchangeable with money, and when Bernanke printed money to buy bonds, he didn't in fact change the money supply, because bonds are part of the money supply. So banks now have one type of money (cash) instead of another type of money (bonds). So theoretically this shouldn't change much.

What do you think?

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## thoughtomator

Because the official inflation numbers are a blatant lie with the primary purpose of keeping COLA and other inflation-indexed expenses from blowing up the government, and secondary purpose of masking the true state of the economy from rubes who might otherwise protest it.

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## eugenekop

I'm not talking about CPI, but about the real inflation, which I think is quite modest, especially when compared with the huge amount of money printed.

What do you think about my explanation for this?

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## pcosmar

> What do you think about my explanation for this?


It's called "Cooking the Books".
 a continuation of siphoning off the wealth in to a very few hands,

inflation is not "modest", It is ongoing.

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## Brian4Liberty

Is 100% inflation over the course of five years "modest"?

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## eugenekop

I'll rephrase. 

Why does it matter whether banks hoard government bonds or money? In both cases they can use this instruments to bid for stuff on the market and to raise prices. Now the banks are hoarding huge amount of money. But before that they hoarded huge amount of government bonds. So what's the difference?

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## Brian4Liberty

> inflation is not "modest", It is ongoing.


And "compounded daily".

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## acptulsa

> Is 100% inflation over the course of five years "modest"?


I'd say not.  First time I've seen it this bad since the 1970s.

Of course, if you think the World's Dying Reserve Currency can turn into Zimbabwe money overnight, it might seem like modest inflation to you.  But for those on Social Security, which no longer recognizes changes in food prices as 'inflation', this is plenty bad enough.

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## hazek

I didn't know inflation was modest given where stocks prices are relative to the economy and given the all time record high prices of US gov bonds we had just 1 month ago or so. Just because you don't see it in the grocery story doesn't mean it isn't there. But it will get there, just wait till the bond bubble pops.

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## hazek

> I'll rephrase. 
> 
> Why does it matter whether banks hoard government bonds or money?


Why do bubbles matter?

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## WilliamShrugged

Maybe some of these will help.

http://mises.org/daily/5574/On-the-B...onary-Disaster

http://mises.org/daily/5449/Defaulti...the-Feds-Bonds

http://mises.org/daily/5155/Where-Is-QE2-Taking-Us

http://mises.org/daily/5110/Three-Fl...d-Exit-Options

http://mises.org/daily/5057/Accenttc...ing-at-the-Fed

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## gonegolfin

> Why inflation is so modest with zero interest rates and after Q1 and Q2?
> 
> My own explanation (which might be bogus) is that government bonds are interchangeable with money, and when Bernanke printed money to buy bonds, he didn't in fact change the money supply, because bonds are part of the money supply. So banks now have one type of money (cash) instead of another type of money (bonds). So theoretically this shouldn't change much.
> 
> What do you think?


IOR (Interest on Reserves) ... the new way to implement Fed monetary policy. A substantial portion of the bank reserves created by the Fed asset purchase programs, since unsterilized purchases commenced in September of 2008, have not made their way into the economy (money supply). You can gauge the rate of entry by looking at the movement in Required Reserves (RR).

Meanwhile, the IOR policy still helps recapitalize the banks ... stealthily.

There has also been plenty of debt repayment as well, which is deflationary. I know several folks that paid off their mortgages and bought new homes with cash (myself included). But the above (IOR) is *directly responsible* for sequestering a substantial amount of reserves created by the Fed (thus keeping those sequestered dollars from moving into narrow money supply).

Brian

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## madengr

I think it's simply that Joe Consumer has no money to spend.  QE3 is being pumped into mortgages, which goes straight back to the banks, and maybe keeps Joe's house from being foreclosed upon.

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## enter`name`here

As I understand it the banks are just hoarding the cash, so it is not hitting the "REAL" economy. Eventually when the economy is doing better and the banks feel that lending is less risky/more profitable, we may see this money loaned out and this is when you would see inflation.  The fed is bassically betting that they will be able to time the markets and remove the liquidity at the exact moment that this happens. Do you have faith in the fed?

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## Cody1

Since the dollar is the reserve standard the United States also has the added benefit of outsourcing a lot of inflationary money into the world market, the petrodollar seemingly is the only think keeping the illusion of value to the dollar. Imagine the chaos if the dollar were completely dumped for tangible assets like gold.

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## sevin

If all this money-printing had occurred while the economy was already doing well, it would have caused a lot more inflation, maybe hyperinflation. But the deflationary forces are so powerful that there's a tug-of-war between inflation and deflation. Inflation is winning, however, and will definitely win in the end now that we have open-ended QE.

That's way overly-simplistic, but I think it's about right.

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## thoughtomator

When a product I paid $1 for three years ago costs $1.79 now (on average) - that is not _modest_ inflation, that is _rampant_ inflation.

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## awake

A lot of the newly created money is being diked by Bernanke. He's holding the reserves from being lent out by paying a secure "safe" interest rate to the banks to hold the massive reserves with the Fed. Once these reserves get unleashed you will see stagflation.

QE bond buying: printing new money and handing it to the government to pay paychecks, welfare and warfare will indeed be noticible with "QE forever".

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## thoughtomator

> If all this money-printing had occurred while the economy was already doing well, it would have caused a lot more inflation, maybe hyperinflation. But the deflationary forces are so powerful that there's a tug-of-war between inflation and deflation. Inflation is winning, however, and will definitely win in the end now that we have open-ended QE.
> 
> That's way overly-simplistic, but I think it's about right.


The latest round of QE is especially inflationary since they are preventing the natural destruction of bad debt and the resulting deflation that comes from debt destruction. They are buying mortgage backed securities - the worst garbage produced by the bubble. With many of those securities there are serious title issues - the burying of which is likely a major motivator in this panicked move by the banking cartel).

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## Zippyjuan

> I'll rephrase. 
> 
> Why does it matter whether banks hoard government bonds or money? In both cases they can use this instruments to bid for stuff on the market and to raise prices. Now the banks are hoarding huge amount of money. But before that they hoarded huge amount of government bonds. So what's the difference?


Actually you are answering your original question here.  The key is that the money the Fed used to purchase all of those assets is not out circulating- getting spent and competing with other dollars for goods and serivices.  Besides what they have in their own vaults, banks have something like $1.6 trillion in "excess reserves" sitting at the Federal Reserve.  It is still potential money- but as long as it is not "getting out" it is not going to cause inflation.  Money under your mattress is not competing with money everybody else is spending on things- the Fed is a giant mattress with lots of money stashed under it.   The Fed is paying a quarter of one percent to encourage the banks to keep the money there (not a huge incentive but it is actually higher than US Treasury notes as long as two years (the two year notes are currently paying 0.24%).

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## idiom

Monetary destruction is happening behind the scenes at an extraordinary rate. There is still an incredible amount of bad debt being slowly defaulted on.

The massive amount of printing has still not caught up with the giant sucking deflationationary hole.

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## Carson

Opps! Double post.

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## Carson

> Why inflation is so modest with zero interest rates and after Q1 and Q2?
> 
> My own explanation (which might be bogus) is that government bonds are interchangeable with money, and when Bernanke printed money to buy bonds, he didn't in fact change the money supply, because bonds are part of the money supply. So banks now have one type of money (cash) instead of another type of money (bonds). So theoretically this shouldn't change much.
> 
> What do you think?



*One thing that can offset the counterfeiting is defaulting on debt.*

Still it is hard to see inflation up close for me. I'm guessing its been over 8% a year most of my life. I think once some time passes and we look back at the last few years we will be able to see it was alive and well. Actually I have been thinking the last year we had a nice break and had some counterfeiting easing.

Anyway if you look long term it looks heavy duty. Not like the figures they dish out anyway.

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## thomas-in-ky

Home equity, which consumers had been using like cash, has dropped substantially.   Stock equity (measured in terms of gold or an undiluted currency) has gone down substantially as well.  It seems to me that the evaporation of equity has had a significant countervailing effect on these QE maneuvers wrt expanding the money supply.

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## chudrockz

I don't know about all the broader arguments, but a personal example:

Around two or three years ago, we used to buy a 20 pound bag of cat food for around twenty bucks. Now, the exact same food comes in a 16.5 pound bag and costs about $35.

I'd say that's inflationary.

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## Brian4Liberty

> Home equity, which consumers had been using like cash, has dropped substantially.   Stock equity (measured in terms of gold or an undiluted currency) has gone down substantially as well.  It seems to me that the evaporation of equity has had a significant countervailing effect on these QE maneuvers wrt expanding the money supply.


Exactly. And don't forget deflation in wages and underemployment. Deflation offset by monetary inflation. And the net result is one of the greatest transfers of wealth in the history of mankind.

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## eugenekop

"Home equity, which consumers had been using like cash"

Can you explain this sentence please? What is the mechanism behind that?

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## GeorgiaAvenger

The money hasn't exited the banking system yet.

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## acptulsa

> "Home equity, which consumers had been using like cash"
> 
> Can you explain this sentence please? What is the mechanism behind that?


It's commonly called 'a second mortgage'.




> Exactly. And don't forget deflation in wages and underemployment. Deflation offset by monetary inflation. And the net result is one of the greatest transfers of wealth in the history of mankind.


Rep 4U

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## TheTexan

> Exactly. And don't forget deflation in wages and underemployment. Deflation offset by monetary inflation. And *the net result is one of the greatest transfers of wealth in the history of mankind*.


And most people just continue to blindly support their chosen Blue Team Leader, or Red Team Leader, and cheer them on towards our own destruction.

This is how liberty dies... with thunderous applause.

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## Brian4Liberty

> "Home equity, which consumers had been using like cash"
> 
> Can you explain this sentence please? What is the mechanism behind that?


Also see HELOC (Home equity line of credit). When unemployment started rising after the crash of the dot con bubble, it became "common wisdom" that taking out your home equity for spending cash was a relatively better idea than using credit cards, which were at a higher rate of interest.

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## eugenekop

Okay, thanks.

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## Steven Douglas

> "Home equity, which consumers had been using like cash"
> 
> Can you explain this sentence please? What is the mechanism behind that?


Home equity only means the difference between what you currently owe on your house and what it could sell for currently on the market. 

Simplistically speaking, let's say you paid $300K for a home in 2000. That is what you owe the bank, and what your house would still sell for after taking out the loan. By 2005, within five short years, the market price for similar homes trading in that area shoots up to $500K.   You don't know why, and you don't care. It's your windfall, so happy days! You now have a home that is "worth" $500K, because you could sell it to someone else for that amount. That also means you have $200K in additional "home equity", meaning that if you sold your home (at that time), you could pay off the loan for $300K and pocket $200K for yourself.   

Banks during the housing boom saw this equity as a way of making more loans.  Believing that your equity was indeed real (i.e., your house really would continue to be worth that much and more to others), banks would offer to loan you cash based on that equity. So home equity loan offers from banks were splashed out all over the place, as enticements to take out second mortgages. You could now borrow against your equity, and use that cash for anything you wanted; home improvements, a down payment on yet another overvalued home, a new car, send your kid to college, vacations, or anything else.  You would now owe the bank(s) $500K total, but that's OK, because everyone knew that your house would be worth yet even more down the road, which meant that you would have even more equity! You could sell the house for that increased amount, pay off the first and second mortgages, and pocket that difference as well. 

Many homeowners were so euphoric about what was happening in the real estate market, and all that "wealth" being "created", that they were literally using their homes as ATM machines. The mechanism for using home equity as cash was simply going further into debt. This was on the belief (shared by banks and homeowners alike), on the _full expectation_ that there would always be another sucker down the road who is willing to pay even more than you did for it -- that real estate prices could only increase - exponentially even.  

When the housing bubble finally did burst in 2008 (lots of triggering mechanisms for that inevitability), housing prices fell dramatically.  Banks finally woke up to the fact that the free home equity ride was over.  Now your house is back to being worth only the $300K you originally paid for it. But you took out a $200K second mortgage.  That extra $200K was spent and is now long gone, but you are now "upside down", as you now owe $500K total for something that is currently only worth $300K.  Much of the *illusion of wealth* was wiped out (the nominal market value of the home). Not the nominal price of the debts.  You still owe that amount, regardless what the home is worth. 

The entire housing boom was a phase in the business cycle where rampant speculation was fueled by low interest rates, easy credit, government guaranteed loans, etc., all of which combined to cause the general prices of real estate to skyrocket.  But real estate was not the only market that was affected. That extra $200K that you and others had spent from taking out second mortgages on overvalued real estate -- that created yet other market distortions -- other market bubbles as artificial expectations spilled over into other markets. These other markets, many unrelated to housing, saw only increased demand for their goods and services.  And there was a full expectation that this demand would continue as well. There was no reason to believe that demand would dry up, so everyone geared up accordingly. Nobody was paying attention to the fact that much of that extra spending was coming from banks in the form of a massive amount of debts that were about to go sour.

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## jbauer

The only logical explanation I've heard for this is that since we "print" money and distribute it throughout the population we then ship it off seas to buy oil and goods and thus are exporting our inflation to China and the Middle East.  Thus we won't have inflation until our holding in our own money supply increases.

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## eugenekop

Thank you for the detailed explanation Steven.

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## roho76

My thought was that when foreigners used to buy our cash (bonds) they would hoard them in there bank vaults as an investment and so that money would never hit the streets so we never seen the real damage of inflation. If I print a hundred dollars and keep fifty in my drawer and never spend it, it's like it was never created, until I do spend it. I thought this was the way they were going to take down America. Hand out all this money and then boom and uncontrollable inflationary spiral when everyone sells their bonds on the market for pennies on the dollar. Now that the FED is buying them up I have no idea. Though I'm not the most educated in Fiat money manipulation. 

This is why you have to have a PhD in economics from Harvard to understand what should be simple accounting. They bastardize the hell out of it and now it makes no sense.

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## Zippyjuan

That is why the Fed (as Brian pointed out recently) is paying interest on excess reserves banks leave with the Fed- it is basically keeping the money from purchases the Fed has been making "under the matteress" and not circulating. Excess reserves have soared along with the Fed balance sheet.

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## The Free Hornet

> *Why the modest inflation?*


Another factor might be productivity.  Instead of enjoying lower costs, any benefit from productivty is inflated away.  We might make and distribute bread 10% more efficiently over a period of time, but inflation can wipe that out and result in a "modest" 5% price increase.  The actual price increase, if adjusted for inflation, would be higher - like 15%.

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## GeorgiaAvenger

One thing I heard about the mortgage purchases, is that the money homeowners pay off goes to the Fed. Though they really aren't paying off that much, I would think. And mortgages are long term propositions.

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## Zippyjuan

If that mortgage was repackaged into a mortgage backed security and resold and that was in one of the ones the Fed purchased, that would be true. The Fed then turns over profits at the end of the year (minus their costs) to the US Treasury.

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## TheTexan

> Another factor might be productivity.  Instead of enjoying lower costs, any benefit from productivty is inflated away.  We might make and distribute bread 10% more efficiently over a period of time, but inflation can wipe that out and result in a "modest" 5% price increase.  The actual price increase, if adjusted for inflation, would be higher - like 15%.


Indeed, and that extra 10% goes directly into the pockets of the bankers.

Really, it's many different things holding back the inflation (temporarily).  All of these factors together are working to $#@! us in the ass.

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## BlackTerrel

> Because the official inflation numbers are a blatant lie with the primary purpose of keeping COLA and other inflation-indexed expenses from blowing up the government, and secondary purpose of masking the true state of the economy from rubes who might otherwise protest it.


This.  Pretty much.

My cost of living has shot up in the past 5-10 years despite still being single and still living a pretty similar/modest lifestyle.

You don't need to be an economist to know inflation is well over zero.

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## Paul Or Nothing II

> Indeed, and that extra 10% goes directly into the pockets of the bankers.


Not really. Banks may get a small piece of it as interest but most of it either goes to borrowers (if they don't repay the loan) & to the government.

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## TheTexan

> Not really. Banks may get a small piece of it as interest but most of it either goes to borrowers (if they don't repay the loan) & to the government.


They are first in line to get their hands on the funny money, hot off the printer.  I'm sure they get more than their "fair" cut.

Second in line is usually also bankers.  Third in line is also a banker. They get their cut too.

Maybe the fourth person is a borrower.

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## Paul Or Nothing II

> They are first in line to get their hands on the funny money, hot off the printer.  I'm sure they get more than their "fair" cut.
> 
> Second in line is usually also bankers.  Third in line is also a banker. They get their cut too.
> 
> Maybe the fourth person is a borrower.


Let's look at a simple example of how new money usually enters the economy.

Depositors deposit THEIR money with banks > banks PAY Treasury to buy securities > now Fed pays newly created money to banks for the securities

Banks didn't get anything for free there, they pretty much get what they had PAID to the Treasury, most of it still indirectly belonged to the depositors, banks may just end up scoring the small difference between buying & selling, whether positive or negative.
On the other hand, the interest to be paid on Treasury-Securities held with Fed is handed back to the Treasury as Fed's profits so that much money is saved for the government, which would otherwise have ended up with outsiders, that's the gain for the government; not to mention, inflation pushes up everybody's incomes, which means they must pay more in taxes to the government.

Now, as for the borrowers, let's say there are X number of goods/services out there, when somebody borrows & buys stuff with it, they are essentially using depositors' purchasing-power to buy it & simultaneously push demand & prices up for everybody else
If they produce & repay the loan then fine but if they don't then they'll have essentially consumed goods/services out of the economy without adding equivalent amount of it back into the economy. In most cases, it's a loss for the bank as it didn't get the money from borrowers but they would still have to pay the depositors; & in case bank doesn't have enough profits to cover such losses, it fails & depositors don't get their deposits back either.
In the first instance, non-paying borrowers will have essentially stolen purchasing-power from the lending-bank while in the second instance, borrowers will have indirectly stolen purchasing-power from depositors; in either case though, they'll have also stolen a bit of purchasing-power from everyone in the economy as demand & prices were pushed up as borrowers consumed more than they produced.

There's a big difference between Fed & commercial banks, former creates a lot of problems while latter are an essential part of a market-economy, without which the economy & production will grow very slowly, it will like going back to Dark Ages when charging interest was restricted, which had profoundly negative effect on economy.

If the tirade against Fed turns into tirade against banking in general then we'll have a pretty bleak future to look forward to & there will be no difference between liberals & libertarians.

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## hazek

Read this: http://www.zerohedge.com/news/perspe...ic-catch-phase

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## TheTexan

> Banks didn't get anything for free there ... small difference between buying & selling, whether positive or negative.


Considering the volume of trades they do, there is nothing small about it.  Most of the banking industry is just moving money around, not actually lending, and when they do lend, it's at a significantly higher rate than the rate at which they borrowed (~0%).

Bankers profit.  Big time.




> If the tirade against Fed turns into tirade against banking in general


That's not what I'm saying.  Banks and bankers are good, and serve a legitimate purpose.  Banks and bankers who have a friend with a funny money printing press, is not good, and does not serve a legitimate purpose.

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## Paul Or Nothing II

> Considering the volume of trades they do, there is nothing small about it.  Most of the banking industry is just moving money around, not actually lending, and when they do lend, it's at a significantly higher rate than the rate at which they borrowed (~0%).
> 
> Bankers profit.  Big time.


Which is still small compared to the benefits gotten by non-paying borrowers & government, which was precisely my point.

Besides, who is to decide whom they should lend? If lending to government is in their self-interest, then of course they would, afterall, all of us are guided by our own self-interests too, we too try to optimize our earning, the return on our capital, be it monetary capital or human capital.

And why would anybody lend at the rate they are borrowing? That makes no sense so of course they are going to lend at a higher rate than they are borrowing at, otherwise there'd be point in doing it! And how high the rate ought to be is determined by the market as they compete with one another to offer the lowest rate possible to attract most borrowers.




> That's not what I'm saying.  Banks and bankers are good, and serve a legitimate purpose.  Banks and bankers who have a friend with a funny money printing press, is not good, and does not serve a legitimate purpose.


We live in a majority-rule system so that printing-press even exists because majority chooses to support it indirectly, if majority wanted liberty & sound money then it'd be there in no time but no, instead they choose to support big government & socialist thievery so that's where the blame should go!
Do banks benefit by lending to government? Of course they do but if majority wanted to stop it & end Fed, they can but instead they are too busy collecting welfare-benefits which'd probably not exist if government couldn't re-finance itself thru Fed!
My point being that banks aren't the only ones benefitting, there are plenty of people who do benefit from the system so my original point still stands that banks are NOT necessarily the biggest nor the only beneficiary of the system.

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## Madison320

I think it's a combination of things:

- CPI is understated, my guess is prices are rising somewhere around 5-7% a year. But that's still pretty low compared to how much we've printed. 
- Banks are holding cash.
- Recession forces are putting downward pressure on prices.
- Foreigners are holding cash.

This is just a guess but I think the biggest factor is the last one, that foreigners are holding cash.

I have a feeling the longer this goes on the faster prices will rise when it finally hits.

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## PaulConventionWV

I think the point in all this is that a number of factors can influence how much inflation we perceive.  In all our history since 1913 and since 1971, we haven't seen inflation shoot up directly as a result of the printing of money.  We didn't wake up one day and realize that our dollars were worth less.  Some of the printed money sits, some of it goes overseas, some of it goes into the banking system and takes a while to get transformed to credit, some of it is simply exchanged for other forms of money.  In other words, there is no directly noticeable effect.  It is a cycle that is ongoing.  It has been going on and the cycles have been overlapping so that there is no perceived change except that which we can see has happened over long periods of time.  I would imagine there was some timing that went into the decision to initiate QE3, but the inflation as a result of that is just another rock thrown into an already turbulent lake.

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## TheTexan

> Which is still small compared to the benefits gotten by non-paying borrowers & government, which was precisely my point.


That's a flawed perspective though.  In theory, if you were to receive a loan and not pay it ever, you would be better off.  Except, if you don't pay it, they rape your assets.  You and I can't get away with not paying our debts... you can only get away with that if you have billions/trillions in debt.  Funny how that works.

The bankers are the ones who profit from this Federal Reserve arrangement.  Not the borrowers.  The borrowers may receive a loan at a slightly better rate than they would otherwise, but the bankers loan at a MUCH better rate than they would otherwise.

That's the bottom line, and my main disagreement with you.  You say that the bankers aren't the ones making money off of this... but that's extremely not true.  They are the ones who created this system, keep it in place, profit from it, rape it, exploit it.




> Do banks benefit by lending to government? Of course they do but if majority wanted to stop it & end Fed


They don't want to... they're making billions... if not hundreds of billions... or on a global scale, trillions... they don't want to stop it lol. 





> My point being that banks aren't the only ones benefitting, there are plenty of people who do benefit from the system so my original point still stands that banks are NOT necessarily the biggest nor the only beneficiary of the system.


I agree the banks aren't the only ones benefitting.  But the bankers do benefit the most.

Look at it this way, on a single loan:
1) the "non-FED" rate or the "real market rate" of the loan may have been 8%
2) the loan was given to the borrower at 3%
3) the loan was given to the banker at 0.001% or effectively 0%

The borrower got a 5% advantage, whereas the banker only got a 3% advantage.  So at first glance, you may think the borrower is the one coming out on top.  The borrower does benefit more on this single loan, but in total, the borrower does not benefit nearly as much as the banker.

The reason that is, is because the borrower only got that single loan, but that same banker made 30,000 (or more.. a lot more) similar loans.  The banker has unlimited 0% loans available, so if he can even loan at .5% he will do that, as many times as he possibly can.

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## TheTexan

Paul or Nothing, this article says it much better than I can, I encourage you to read it:
http://www.zerohedge.com/news/guest-...ederal-reserve

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## Paul Or Nothing II

> That's a flawed perspective though.  In theory, if you were to receive a loan and not pay it ever, you would be better off.  Except, if you don't pay it, they rape your assets.  You and I can't get away with not paying our debts... you can only get away with that if you have billions/trillions in debt.  Funny how that works.


Not all assets are tangible, some are consumed & their value doesn't always remain stable & it may even fall, in which case non-paying borrowers are the essential beneficiaries at the expense of the lending-bank &/or depositors.
Imagine lending out 100,000 for a house & being able to recover only 50,000 because its value has fallen.




> The bankers are the ones who profit from this Federal Reserve arrangement.  Not the borrowers.  The borrowers may receive a loan at a slightly better rate than they would otherwise, but the bankers loan at a MUCH better rate than they would otherwise.


Actually, bankers would be able to score a higher rate if Fed didn't exist because without Fed, credit-supply would be much more limited & therefore "price of credit" aka interest would be much higher & so would be price paid for the service provided by banks.
For example, when supply of computers was low, the profit made per computer would be much higher than now, when supply of computers is more.




> That's the bottom line, and my main disagreement with you.  *You say that the bankers aren't the ones making money off of this*... but that's extremely not true.  They are the ones who created this system, keep it in place, profit from it, rape it, exploit it.


Consider re-reading my earlier posts, nowhere have I said this. I've VERY CLEARLY said that they DO benefit but just not as much as non-paying borrowers & government

And no, the system can exist only with majority-consent as we live in majority-rule society & if the majority wanted to end the Fed badly enough then people like Ron Paul & others would be elected & Fed would be ended immediately but apparrently majority don't want to do that.




> They don't want to... they're making billions... if not hundreds of billions... or on a global scale, trillions... they don't want to stop it lol.


It's not rocket-science so I don't know why it'd be so hard for anyone to grasp the reality that the majority don't wish to end the Fed because if they did then it would be ended immediately because there's a political market too, where politicians WILL do what voters say given they demand it badly enough........Ron's audit the Fed went thru only because of that.





> I agree the banks aren't the only ones benefitting.  But the bankers do benefit the most.


Biggest beneficiary is the government, it benefits in a number of ways, be it from the interest saved on Treasuries held by Fed, be it paying lower interest on Treasuries to outsiders with Fed putting downward pressure on rates, be it individuals & companies having to pay more taxes as their nominal incomes rise due to inflation & so on.




> Look at it this way, on a single loan:
> 1) the "non-FED" rate or the "real market rate" of the loan may have been 8%
> 2) the loan was given to the borrower at 3%
> 3) the loan was given to the banker at 0.001% or effectively 0%
> 
> The borrower got a 5% advantage, whereas the banker only got a 3% advantage.  So at first glance, you may think the borrower is the one coming out on top.  The borrower does benefit more on this single loan, but in total, the borrower does not benefit nearly as much as the banker.
> 
> The reason that is, is because the borrower only got that single loan, *but that same banker made 30,000 (or more.. a lot more) similar loans*.  The banker has unlimited 0% loans available, so if he can even loan at .5% he will do that, as many times as he possibly can.


(bold part).....which also means 30,0000 (or more.. a lot more) borrowers benefitted too!

What the banks earn is dependent on supply & demand of credit, they CAN'T arbitrarily charge any rate just like sellers of tomatoes or potatoes or whatever CAN'T just charge any rate they may feel like, all prices (interest being price of credit) are determined by the market based on supply & demand for a given product so whatever banks get is the fair value of their services according to the given supply & demand situation, just as it is for tomato-vendors, potato-venders, or laborers & CEOs (who sell their labor).

And as I've said, if Fed didn't exist then supply  of credit would be much tighter & therefore the service-premium earned by the banks would be much higher than it is in the current market where Fed is is making excessive credit available.

----------


## Paul Or Nothing II

> Paul or Nothing, this article says it much better than I can, I encourage you to read it:
> http://www.zerohedge.com/news/guest-...ederal-reserve


Typical conspiracy theorists! They always mention that Fed is "private"  Anyone wishing to offer an objective view of things wouldn't proclaim their conspiratorial bias so much, not to mention, Fed doesn't ACTUALLY work like a private company, it's just created the way it is to make it seem apolitical.

And of course, the author must make it seem like 16 trillion were just "given away for free" when in fact, they were given as loans & Fed earned interest on it, which it handed over to Treasury. Not to mention the author would have every newbie believe that all 16 trillion were loaned at the same time whereas in reality they were actually given in cycles of loaning & getting paid, loaning & getting paid & so on.
I don't approve of the bailouts but bailouts are bad by themselves, one doesn't need to go all over the top & make it seem like a big conspiracy by adding one's own fabrications.

It also says banks never have to pay back their loans *facepalm* Clearly, the author has no clue, never seems to have read anything but conspiracy theories! I hope not too many people read & believe everything such articles have to say.

The article essentially seems like it's written by someone involved with OWS + conspiracy theorist, with an intention to incite people against the whole banking industry (which is an essential part of a market-economy) rather than it simply being a critique of government-bred Fed.

----------


## Steven Douglas

> And as I've said, if Fed didn't exist then supply  of credit would be much tighter & therefore the service-premium earned by the banks would be much higher than it is in the current market where Fed is is making excessive credit available.


The usually-unspoken side effect of that: When the price of credit goes up, the value of privately accumulated capital (savings, the other competing source of money) increases right along with it.  Savings is a valid market substitution for debt-currency when it is not taxed.  

When savings (NOT fractionally reserve-lended bank savings -- but actual mattress savings) competes fairly, on even footing with debt-instrument currency from banks, even more downward pressure is placed on the value of credit itself. This naturally drives down its price, _but not its supply_ in the microeconomics sense. 

"Demand" for credit (in the macroeconomic sense only) is one of the big Keynesian-spawned lies in the nightmare we have all inherited from Congress and it malevolent genie, the Fed.  Just because the Fed can directly affect interest rates does not mean that they can affect supply in the microeconomics sense (the amount of credit a bank is willing and able to provide at a given price). That is because *banks are not forced to lend to just anyone at any given price*, _any more than they are now_.  Just because interest rates for banks are zero (or negative) does not mean that the "supply" of credit is abundant to all.  Credit is always an elite, exclusive market, and certainly not available to everyone.  You actually need valuable capital as collateral, or else a good credit rating, to take advantage of those cheap interest rates (debt-money prices).  So while Google, Microsoft, Apple and others can get a $#@!load of debt-cash to strategically hoard in the current environment, let the average doofus on the street try to go and pluck one of those nice warm "Debt Loaves" off the bank bakery store shelves, let alone at that same price.  He'll be shown to the door, like everyone else.   

So QE from the Fed doesn't "SUPPLY" anyone but the banks and those fortunate enough to not need them in the first place. The economic 'supply' of currency to everyone else is another story entirely. 

Without the Fed in place for bank protection, and Congress in place to protect both the currency and banks as the only sources from any viable competition, banks would be _even more afraid to lend, and at even lower prices_. That spirals into even more tightening of credit from commercial lending institutions, because the rising value of the currency means that debts can no longer be liquidated using a currency that is guaranteed to be debased.  Borrowers actually would be forced to pay off loans in a currency that is rising in value.  Not even Google, Microsoft and Apple would touch that kind of credit with a ten mile long pole. That is when _true demand for credit_ (from those who are actually willing AND ABLE TO BORROW -- *based on bank approval* -- _goes down_. And along with that goes the REAL PRICE of debt-money.  The net effect is that everyone, but especially private individuals, will have all the incentive in the world to "work hard and save", while everyone else is discouraged from going into debt in the first place.  Good for everyone else who works hard and save. Not good for banks at all, once they've lost their monopoly and other protections.

----------


## gonegolfin

> Paul or Nothing, this article says it much better than I can, I encourage you to read it:
> http://www.zerohedge.com/news/guest-...ederal-reserve


This article is wrong. Banks do not borrow from the Fed at 0%. In fact, they rarely borrow from the Fed. The discount window (primary credit) is rarely used and when it is, it is not at 0%. It also requires pledged collateral and a haircut. The discount window throughout this financial crisis has played an insignificant role.

The specialized Fed lending programs that surfaced pre-September 2008 (such as the Term Asset Facility or TAF) were not zero interest loan programs. They charged a market interest rate that was nowhere near zero and required collateral and a haircut. These reserves injections were also sterilized, so the effect was one of change in balance sheet composition ... not size.

Also, the banking system has received nowhere near $16 trillion from the Fed. This is the same nonsense garbage that has been spewed by other ignorant authors. The Fed is out of control. But let's not exaggerate the truth. It discredits the movement.

I stopped reading the article soon after starting.

Brian

----------


## Mini-Me

> This article is wrong. Banks do not borrow from the Fed at 0%. In fact, they rarely borrow from the Fed. The discount window (primary credit) is rarely used and when it is, it is not at 0%. It also requires pledged collateral and a haircut. The discount window throughout this financial crisis has played an insignificant role.
> 
> The specialized Fed lending programs that surfaced pre-September 2008 (such as the Term Asset Facility or TAF) were not zero interest loan programs. They charged a market interest rate that was nowhere near zero and required collateral and a haircut. These reserves injections were also sterilized, so the effect was one of change in balance sheet composition ... not size.
> 
> Also, the banking system has received nowhere near $16 trillion from the Fed. This is the same nonsense garbage that has been spewed by other ignorant authors. The Fed is out of control. But let's not exaggerate the truth. It discredits the movement.
> 
> I stopped reading the article soon after starting.
> 
> Brian


I've come to pretty much take your word as gospel when it comes to the Fed, but I'm at a bit of a loss here:  Are you saying the GAO analysis chart in the article showing $16 trillion in loans is made up entirely, or that it's being misrepresented, or what?  Could you elaborate?  (Could you also elaborate on what you mean by the pre-September 2008 loans being "sterilized," since I'm unfamiliar with the concept?)

----------


## Mini-Me

Oops, double-post.  (I have to catch up with the 30,000 club somehow.)

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## TheTexan

> This article is wrong. Banks do not borrow from the Fed at 0%. In fact, they rarely borrow from the Fed. The discount window (primary credit) is rarely used and when it is, it is not at 0%. It also requires pledged collateral and a haircut. The discount window throughout this financial crisis has played an insignificant role.


There is a difference between the discount window and the "Open Market Operations."  The discount window is loaned at a premium, whereas their so-called "open market" operations are loaned at or near 0% and are closed-book. (technically these open market operations aren't necessarily loans, but even the securities purchases accomplish the same thing, from the profit perspective of the bankers)

(I put "open market" in quotes because that "open market" is restricted to Goldman Sachs, Citibank, and a handful of other global mega banks)

----------


## TheTexan

> (bold part).....which also means 30,0000 (or more.. a lot more) borrowers benefitted too!


Collectively, yes.  Individually, the bankers are making the big $$$.  BIG $$$.  Huge incentive to keep the status-quo.

If one banker takes 10% out of 10 trillion, and distributes the other 9 trillion relatively equally across everybody (in reality it isn't evenly distributed but that's not the point), the primary benefactor is the banker.

Everybody else, didn't really earn much.  Their small fraction of the 9 trillion was diluted through inflation.  They do benefit, but they do not have nearly as much incentive to keep this system up and running as the bankers.

----------


## TheTexan

> Are you saying the GAO analysis chart in the article showing $16 trillion in loans


It was never $16 trillion at one time.  They'd loan a small amount, it would be paid back, then they'd loan some more.

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## gonegolfin

> There is a difference between the discount window and the "Open Market Operations."  The discount window is loaned at a premium, whereas their so-called "open market" operations are loaned at or near 0% and are closed-book. (technically these open market operations aren't necessarily loans, but even the securities purchases accomplish the same thing, from the profit perspective of the bankers)


LOL. Yes, I understand the discount window (aka primary credit) and I understand open market operations in depth. I mentioned the discount window because this is the only mechanism used by the Fed to issue loans to depository institutions (sans the specialized lending facilities I mentioned that were in use during the financial crisis for a period of time and expired three years ago). Open market operations come in two types ... Temporary Open Market Operations (TOMOs) and Permanent Open Market Operations (POMOs). *Neither are loans*. TOMOs are what the Fed once used (before September 2008) to implement the Federal Funds rate ... and thus monetary policy. TOMOs now play a minor part given the size of the current Fed balance sheet and Interest on Reserves (IOR). TOMOs are very short term methods to either add reserves or drain reserves to/from the banking system. The Fed purchases or sells (not loans) pre-approved assets (treasuries, agency, debt, agency MBSs) for a short duration (typically a day, but as much as 28 days), depending on its needs for reserves in the banking system (it implement its federal funds target rate) for that day. But as I said, the federal funds rate is now obsolete (or impotent if you will).

To be clear here ... "the securities purchases" *do not* "accomplish the same thing" as loans "from the profit perspective of the bankers". In the case of repurchase agreements, the Fed purchases actual pre-approved securities in exchange for reserves. It is adding liquidity to the system, not loaning funds. The bank meanwhile surrenders securities as it is a sale. This process is also executed as a bidding process (accepted price for the securities) and are very short term in nature. 

POMOs are permanent outright asset purchases or sales. Again, not loans.




> (I put "open market" in quotes because that "open market" is restricted to Goldman Sachs, Citibank, and a handful of other global mega banks)


No, Fed open market operations are conducted via the Fed primary dealers. Currently there are 21 primary dealers and some of these entities are extensions (arms) of large banks ... but not all of them. Some of them, such as Cantor Fitzgerald, act merely as agents on behalf of the banks in operations.

Brian

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## gonegolfin

> I've come to pretty much take your word as gospel when it comes to the Fed, but I'm at a bit of a loss here:  Are you saying the GAO analysis chart in the article showing $16 trillion in loans is made up entirely, or that it's being misrepresented, or what?  Could you elaborate?  (Could you also elaborate on what you mean by the pre-September 2008 loans being "sterilized," since I'm unfamiliar with the concept?)


Misrepresented. Whether the Fed was conducting central bank swaps or temporary open market operations, reserves were injected into the system and then removed upon maturity. But the $16 trillion number is arrived at by summing all of these loans, even though there is nowhere near $16 trillion of reserves injected into the banking system at one time. Total reserves in the banking system are currently at about $1.5 trillion with the Fed balance sheet just under $2.9 trillion.

The Fed did not commence permanent outright asset purchases until September 2008. Up until that time, the Fed implemented various lending programs such as the Term Auction Facility or TAF (where reserves were loaned at interest in exchange for eligible collateral and a potential haircut) to provide the banking system with much needed liquidity (actually, they were trying to keep banks solvent). These programs have expired and unwound from the Fed balance sheet, sans a small amount from the Term asset-backed securities loan facility (under $1.7 billion). They were replaced by bigger guns in the form of permanent outright asset purchases (QE). At the time, the Fed did not want to expand its balance sheet (create new reserves), so it sterilized its lending operations by selling treasuries from its portfolio. If the Fed sells an equal amount of securities from its portfolio to the reserves it creates via the purchase or loan, then that operation is said to be reserves neutral or sterilized. What changed was the composition of the Fed balance sheet (lesser quality assets). When the TAF loans matured (which really did not happen until the program was killed as the Fed kept rolling over the loans), the reverse took place.

The Term Securities Lending Facility (TSLF) was self-sterilizing in that the Fed loaned US treasuries in exchange for eligible collateral (according to the agreed upon interest rate and haircut). Thus, the Fed did not create new reserves. Banks participated in this program because they could then use the higher quality treasury securities as collateral for other operations.

Note that while the ECB talks about sterilizing its operations, the ECB is not actually sterilizing. They are expanding their balance sheet. Offering interest to hold reserves on deposit for a week is not sterilizing. It is a very temporary sequestration of reserves. It is not reserves neutral.

Brian

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## TheTexan

> ...


I generally agree with you here, but it's clear you missed my point.  However, I'm not going to spend an hour making a post to explain what I meant, when I'm not sure what your point is.  Could just go in circles forever.





> No, Fed open market operations are conducted via the Fed primary dealers. Currently there are 21 primary dealers and some of these entities are extensions (arms) of large banks ... but not all of them. Some of them, such as Cantor Fitzgerald, act merely as agents on behalf of the banks in operations.


And how is that different from what I said?

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## gonegolfin

> I generally agree with you here, but it's clear you missed my point.  However, I'm not going to spend an hour making a post to explain what I meant, when I'm not sure what your point is.  Could just go in circles forever.


I addressed a very specific point. That is, I addressed your statements of the Fed loaning to the banks at or near 0% (in multiple of your posts). I also addressed this myth that is perpetuated in the article that you suggested for reading. You followed my correction by stating ... "whereas their so-called "open market" operations *are loaned at or near 0%* and are closed-book". This is not correct. They are not loans and there is no interest rate involved ... as I explained in detail. These operations are also limited in scope (and are infrequent these days) ... due to the current monetary environment the Fed has created. This is not a mechanism by which the banks borrow at one interest rate and loan at another, making money on the spread. If you agree with this, then we are good on this subject.

I am merely trying to correct the misunderstanding. Unfortunately, many folks believe this myth because of what is written by internet authors such as the one you linked. I did not want others believing what was in that article because they would be the dumber for it.




> And how is that different from what I said?


You said ... *"I put "open market" in quotes because that "open market" is restricted to Goldman Sachs, Citibank, and a handful of other global mega banks."*.

I explained that the open market is not restricted to these mega banks. The open market operations are facilitated by the 21 primary dealers (only *some* of which are *arms* of mega banks ... and *some* of the others are simply independent agents for  these banks or themselves). *These open market operations are not restricted to the mega banks as you stated*. *Any member depository institution can participate (by proxy) ... even certain government sponsored non-depository institutions can participate (such as Fannie Mae, Freddie Mac, Ginnie Mae, etc.)* ... as they can also participate in the fed funds market. Additionally, the primary dealers can also buy for their own accounts (or serve as a proxy for a non-depository institution). Thus, non-bank primary dealers not serving as an agent for a bank can participate. It is in this capacity that Fed purchases are injected directly into the economy (money supply) ... but this is not the typical arrangement. The typical arrangement leaves money supply unaffected ... which is why I refer to the term "money printing" as erroneous in most cases (another subject).

Brian

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## TheTexan

> "whereas their so-called "open market" operations *are loaned at or near 0%* and are closed-book".


Filling the bank's reserves creates the same result and is essentially the same thing.  This is just semantics IMO.  You also apparently skipped the part immediately after the quote you quoted where I said "technically these open market operations aren't necessarily loans".





> You said ... *"I put "open market" in quotes because that "open market" is restricted to Goldman Sachs, Citibank, and a handful of other global mega banks."*.
> 
> I explained that the open market is not restricted to these mega banks. The open market operations are facilitated by the 21 primary dealers (only *some* of which are *arms* of mega banks ... and *some* of the others are simply independent agents for  these banks or themselves).


_Most_ of them are mega banks.  The others.. are just _agents_ for mega banks?  That's not any different in my book.  More semantics.

I'm still really not sure what your point is.  My point is that the "open market" is pretty $#@!ing far from an open market.

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## TheTexan

The bottom line is that the Fed _does_ indirectly loan at or near 0%.  Everything they do, all the money they inject, all the securities they purchase, is to maintain that 0% as that is their current stated goal.

Saying they loan directly is certainly a misunderstanding, but from a practical aspect it does not matter.  The net result is the same thing.

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## TheTexan

Additionally, some of their open market operations _are_ loans....




> In addition to the SOMA portfolio, the Fed’s total portfolio includes a long-term repo book and a short-term repo book. Repos, also called repurchase agreements or RPs, are a form of collateralized loan where the Fed lends money to primary dealers, and the primary dealers give the Fed high-quality securities as general collateral against the loan.


http://www.newyorkfed.org/aboutthefe...int/fed32.html




> They are not loans and there is no interest rate involved ... as I explained in detail.

----------


## gonegolfin

> *Filling the bank's reserves* creates the same result and is essentially the same thing.  This is just semantics IMO.  You also apparently skipped the part immediately after the quote you quoted where I said "technically these open market operations aren't necessarily loans".


As for your last sentence, you backtracked off of your original statement by saying that they technically they are not necessarily loans ... but were still holding onto the banks obtaining loans from the Fed. Hence, I continued to address the misunderstanding.

#1 *The Fed is not "filling the banks with reserves"* with its temporary open market operations (TOMOs). TOMOs *are only used* for the Fed to meet its goals of implementing the target federal funds rate *in normal monetary conditions*. There are many days when the Fed does nothing. These operations are typically rather small (and these days much more rare due to the size of the Fed balance sheet) *and are only conducted with the primary dealers ... not the banks themselves*. Sometimes these operations are sales of securities from the Fed portfolio, which pulls money from the banking system. Even when the purchaser (primary dealer) is an arm of a depository institution, these purchases/funds do not make its way to the balance sheet of the bank. The banks are not in the business of these types of short term trading operations. This is the role of the primary dealers. The primary dealers sole function is to keep markets liquid (though they certainly have a preferential position). When they do sell securities from their portfolio to the Fed in TOMOs, they are not taking the proceeds and lending it out to make profits. This is not their function. They are market makers.

#2 POMOs are different as they are permanent operations. It is also considerably different due to the scale of the operations. *Primary dealers do not have the capitalization required to sell all of the securities the Fed has wanted to purchase in its outright purchase programs of the past several years. Not even close*. As such, typically, the primary dealers act as agents of the banks (but not always) in selling these securities to the Fed. *This is how the "Fed fills the banks with reserves."*.

As such, TOMOs are not a loan mechanism where the *banks* can obtain funds (at or near 0%) to make profits. They are simply a liquidity mechanism (executed between the Fed and the primary dealers) to control the level of reserves in the banking system (before September 2008). The Fed uses it to both add and drain reserves to/from the banking system. Securities are purchased by the Fed from the primary dealers (not the banks) based on a bid/submission system ... reserves are not loaned out at interest (0% or otherwise). It is also an insignificant liquidity mechanism due to the monetary environment of the past several years. *Permanent asset purchases have supplanted it*. 




> _Most_ of them are mega banks.  The others.. are just _agents_ for mega banks?  That's not any different in my book.  More semantics.


Read more closely ...

- Primary dealers can be arms of banking institutions (but are separate entities with separate balance sheets)
- Primary dealers can act as agents on behalf of banking institutions
- *Primary dealers that are neither arms of banking institutions nor agents of banks can act for their own accounts or other non-banking institutions*

All of the above primary dealers participate in TOMOs. But they do so for their own accounts. The first two categories of primary dealers do act on behalf of the banks *in their permanent open market operations*. The third category does not.

Brian

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## gonegolfin

> The bottom line is that the Fed _does_ indirectly loan at or near 0%.  Everything they do, all the money they inject, all the securities they purchase, is to maintain that 0% as that is their current stated goal.


The Fed employs reserves management operations to manage the federal funds rate to its target ... at least it did before 2008. It now implements monetary policy by setting the interest rate on reserves (IOR), which is at 0.25%. The federal funds rate is now meaningless.  But let's assume for a moment that the fed funds rate was not meaningless (we are in a normal monetary environment) ... even if the federal funds rate had meaning, this rate is a target market rate for federal funds in the federal funds market. *The Fed does not loan funds in the federal funds market*. In normal monetary conditions, the federal funds market sets the rate for federal funds based on the supply and demand of reserves. The participants in this federal funds market are the member institutions themselves. *They play the roles of both lender and borrower, not the Fed*.

Now, regarding your statement "*Everything they do, all the money they inject, all the securities they purchase, is to maintain that 0% ...*" ...

Everything the Fed has done to implement near ZIRP *is via permanent open market operations (permanent asset purchases)*, *not open market operations attempting to implement the target rate in the federal funds market (TOMOs)*. Again, TOMOs are simply a liquidity measure and do not have a lasting effect on the Fed balance sheet. They have an extremely temporary effect (and currently have no effect) *and in no way form the foundation for any sort of lending the recipients of these temporary funds (via sales of securities these recipients own) might want to execute* (forgetting for the moment that primary dealers do not lend). *Asserting that TOMOs are the basis for bank lending is nonsensical*.




> Saying they loan directly is certainly a misunderstanding, but from a practical aspect it does not matter.  The net result is the same thing.


No, it does matter and is not the same thing. I explained the participants in temporary open market operations (TOMOs) in the prior post. These (TOMOs) are liquidity operations and extremely short term in nature (most often a single day). Securities are either purchased or sold by the Fed (depending on whether the Fed wants to add or drain reserves from the banking system). Then a short time later, the reverse occurs (unwind of the position). These operations are conducted strictly to balance the supply of reserves in the banking system such that the Fed's target rate of interest for the federal funds market is achieved (in normal times).

It is permanent open market operations (real Fed balance sheet expansion) that is required to implement near ZIRP policy.

Maybe you would better understand that TOMOs are an extremely temporary liquidity facility and not the basis for any sort of lending where the banks make these supposed grand profits ... if you understood the scale of these operations relative to the rest of the Fed balance sheet.

The latest Fed balance sheet (9/13/12) has total outstanding repurchase agreements at $0. That's right ... total open market operations outstanding on this date (purchased securities from the primary dealers on a very short term basis) ... was zero. Meanwhile, total reverse repurchase agreements was just under $93 billion. Still not a huge number ... but the net is that the Fed *has taken reserves from the system* in the amount of $93 billion on a short term basis.

*Total outstanding repurchase agreements have been $0 since January of 2009!*

The Fed *has not net injected* reserves via temporary open market operations since September 2008! It is not required. The permanent open market operations and IOR implement monetary policy for the Fed.

But even in normal monetary times, these temporary operations are small in scale and most importantly extremely brief (usually one day). August 2006, for example, shows outstanding repurchase agreements at $27.75 billion and reverse repurchase agreements at $28.80 billion ... meaning a net of $1.05 billion actually removed from the banking system.

Are you beginning to understand now?

Brian

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## Mini-Me

Thanks, Brian.  That cleared some things up for me.

I'm still weak in at least two areas though:

First, let me get this straight:  With QE, the Fed has bought assets with newly printed (or electronically created) money to inject reserves into the system...and with IOR, the same banks who sold them these assets can then deposit those same reserves with the Fed for risk-free interest?  Granted, the point of IOR is to let the Fed increase the federal funds effective rate when the time comes, so IOR is probably low right now, but would I be overly cynical by describing this new policy as yet another systemic boon for bankers aside from its stated purpose?  (BTW, what money is used to pay this interest?  Is it paid from the Fed's balance sheet, or is it just printed up?)

Second, on a more fundamental level, the operations you describe - aside from quantitative easing - do not appear to explain how the bulk of our monetary base came into existence in the first place, and I'd really like to concretely understand this once and for all.  Did it come from the Fed "printing" money to buy Treasuries on the open market?  If not, how did it come about?  If so, is M0 therefore closely related to the Fed's current balance sheet, even if fluctuating asset valuations preclude exact equality?  I imagine I must be missing something though:  If the Fed used to only purchase Treasuries in this way, that would imply that almost the entire monetary base would disappear if the federal government paid back its debt and stopped selling Treasuries, and it would similarly imply that almost no money existed prior to the government going massively in debt, which obviously isn't true.  I'm missing something here ("something" probably means "a lot").  Did the Fed ever create new money by purchasing non-Treasury assets outright, even prior to QE?  Your posts seem to imply otherwise, so if not, could you point out what I'm missing here?  At the very least, I assume I'm missing a lot about the transition from a pre-Fed system to a post-Fed system, if not transitions that occurred under FDR as well, because the Fed presumably never had to "start from scratch."

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## Brian4Liberty

> At the time, the Fed did not want to expand its balance sheet (create new reserves), so it sterilized its lending operations by selling treasuries from its portfolio. If the Fed sells an equal amount of securities from its portfolio to the reserves it creates via the purchase or loan, then that operation is said to be reserves neutral or sterilized.


To simplify, this was when the Fed purchased Treasuries, and then quickly resold them in the secondary market? 

For instance, instead of someone in China purchasing a Treasury debt directly from the US Treasury, the Federal Reserve bought directly from the US Treasury, and then put it on the open market for sale. At that point, a person in China could purchase it. I am guessing that the interest rate at that point is better, and the Fed is taking a slight loss on these sales, otherwise the person in China would still be buying direct from the US Treasury.

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## gonegolfin

> Thanks, Brian.  That cleared some things up for me.
> 
> I'm still weak in at least two areas though:
> 
> First, let me get this straight:  With QE, the Fed has bought assets with newly printed (or electronically created) money to inject reserves into the system...and with IOR, the same banks who sold them these assets can then deposit those same reserves with the Fed for risk-free interest?


You understand the concept and what is happening here, but the terminology/components are not quite correct. The Fed does not buy assets with "newly printed money" to inject reserves into the banking system. The simple act of purchasing those assets injects reserves into the system. When the Fed is engaging in balance sheet expansion and buys treasury securities through a POMO operation, the Fed credits the reserve account of the depository institution that is making the purchase through the primary dealer (if in fact a bank is the buyer). If the primary dealer is not acting as an agent, but for its own account, then the bank account used by the primary dealer is credited (deposit money is created) ... as is the reserves account of that bank at the Fed. Hence, Fed buys securities (asset side of the balance sheet), Fed credits reserves (liability side of the balance sheet). When the Fed creates reserves, it is usually not "printing money" in the sense that people use it. It is always creating base money. But until that base money becomes deposit money, it is not part of money supply.

And regarding your IOR sentence above ... the bank does not deposit those reserves. Those reserves have already been credited by the Fed. And yes, the Fed is paying these banks interest on their reserves. In fact, they do not pay interest for just excess reserves (and just reserves on deposit with the Fed) ... they pay interest on all reserves. This includes required reserves as well as vault reserves.




> Granted, the point of IOR is to let the Fed increase the federal funds effective rate when the time comes, so IOR is probably low right now,


The purpose of IOR is to implement monetary policy in this "new normal" of Fed monetary policy. There really is no federal funds rate anymore. The federal funds rate is simply a reflection of the IOR rate. IOR serves as a floor and is at 0.25%. Without IOR, the federal funds rate would be just above zero (and I mean .01% or .001%, etc., not .14%). The reason why the federal funds rate deviates a bit (is a bit below) the IOR rate is because not all institutions with reserves accounts at the Fed are eligible for IOR (only depository institutions are eligible). Think the GSAs (Fannie Mae, Freddie Mac, Ginnie Mae, etc.). These non-depository institutions want to get something for their excess reserves, thus these are the lenders in the now very small federal funds market. They are going to get something for lending out their excess reserves, but probably not 0.25% and certainly not above it (else depository institutions would once again engage in the federal funds market as it would pay more than the IOR rate).

Should the Fed decide to tighten at some point in the future, it would increase the IOR rate. The federal funds rate would simply tag along for the ride and would remain a dinosaur of monetary policy. Think about this ... Excess reserves in the banking system are currently at about $1.5 trillion. If the Fed abandoned IOR, they would have to drain at least $1.2 trillion of those reserves to get any sort of meaningful movement in the federal funds rate. They would probably need to get reserves under $150 billion just to achieve a 1% federal funds rate. And if you recall from my prior articles, even though the Fed has over $1.5 trillion in reserves as a liability, the Fed might not even be able to drain $1.2 trillion in reserves from the banking system. *This is because the selling of its assets might not fetch the $ reserves that were originally created when the assets were purchased (due to interest rate risk and asset risk)*. That is when it would get really interesting.




> but would I be overly cynical by describing this new policy as yet another systemic boon for bankers aside from its stated purpose?  (BTW, what money is used to pay this interest?  Is it paid from the Fed's balance sheet, or is it just printed up?)


Maybe I am not the right person to ask as I have repeatedly written in my Financial Sense articles that I think this is part of the Fed's plan to stealthily recapitalize the banking system. It takes time, but it is time they have. A long, slow, painful process that benefits the banks.

The interest payments are simply additional reserves credits issued by the Fed.




> Second, on a more fundamental level, the operations you describe - aside from quantitative easing - do not appear to explain how the bulk of our monetary base came into existence in the first place, and I'd really like to concretely understand this once and for all.  Did it come from the Fed "printing" money to buy Treasuries on the open market?  If not, how did it come about?


You are really asking what happened on Day 1, right? To get a fiat currency central bank managed monetary system jump-started, you need to buy an initial round of assets. These assets traditionally fall into two categories ... sovereign debt and Gold. This is how the Federal Reserve system got started. The quality of assets are important because these are the securities that back the currency and money supply. This is why I harp on the declining composition of the Fed balance sheet ... both in terms of asset quality and maturity (asset risk and interest rate risk). Meanwhile, the financial media seems to be fixated on only the size of the balance sheet. Both are important. Agency debt and Agency MBSs, unfortunately, have become a core holding of our central bank. Meanwhile, average duration continues to rise and is at unprecedented levels.

Over long periods of time, the Fed engages in asset purchases (at considerably lower levels than that of post September 2008). These asset purchases increase reserves in the banking system (liability side of the balance sheet) and obviously add to the asset side of the balance sheet. Increased reserves means increased monetary base. Over time, some of these reserves become currency in circulation. These types of systems rely on continued inflation (even if it is modest) to survive. This is how it is achieved. From the period of summer 1996 to summer 2006, the monetary base increased from $443 billion to $804 billion. In 1959 it was $40 billion.




> If so, is M0 therefore closely related to the Fed's current balance sheet, even if fluctuating asset valuations preclude exact quality?


Certainly. M0 (Monetary Base) is simply bank reserves plus currency in circulation. M0 is currently at about $2.65 trillion.




> I imagine I must be missing something though:  If the Fed used to only purchase Treasuries in this way, that would imply that almost the entire monetary base would disappear if the federal government paid back its debt and stopped selling Treasuries,


No, you got it. :-)

If all US treasury debt, Agency debt, and Agency MBSs were allowed to either mature or be repaid, the only core assets remaining would be a small amount of Gold. Much money would be destroyed.

Over time, the Fed deals with maturation of its treasury securities by rolling them over with the US treasury. This is a special part of a standard treasury auction where the Fed exchanges maturing securities for new ones (in equal $ principal amounts). This is the only time when the Fed is allowed by law (Federal Reserve Act) to purchase treasuries directly from the US treasury. Though as I pointed out in my 2009 article ... Lending a Helping Hand ... the Fed was really violating the spirit of this rule/law by purchasing "on the run" treasuries (treasuries recently auctioned by the treasury and were two young to establish market price in the secondary market).




> and it would similarly imply that almost no money existed prior to the government going massively in debt, which obviously isn't true.  I'm missing something here ("something" probably means "a lot").


Hopefully I answered that for you above.




> Did the Fed ever create new money by purchasing non-Treasury assets outright, even prior to QE?


Gold.




> Your posts seem to imply otherwise, so if not, could you point out what I'm missing here?  At the very least, I assume I'm missing a lot about the transition from a pre-Fed system to a post-Fed system, if not transitions that occurred under FDR as well, because the Fed presumably never had to "start from scratch."


All systems start from scratch ... but that does not mean that the government did not already have assets to use as backing for the central bank and currency. It did (Gold). The Fed "purchased" them and as such, hold them as asset and liability entries on its balance sheet. The government also issued debt which the central bank purchased.

Brian

----------


## gonegolfin

> To simplify, this was when the Fed purchased Treasuries, and then quickly resold them in the secondary market?


Not quite. The above would not make sense as you stated it. The Fed was purchasing non-treasury assets and offsetting this reserve creation by selling equal amounts of treasuries from its portfolio ... at least until the Fed started running low on US treasuries and needed a Plan B.

What was happening here was simply changes in the composition of the Fed balance sheet. Asset swaps if you will ... though the Fed purchased assets were purchased at a discount (haircut) according to the class of asset. The banks participating in these special programs were able to raise more cash by selling certain assets (again, at a discount) until the process was reversed at maturation of the loan term.

The above describes how the TAF functioned. It was a intermediate term loan program that kept rolling over until they decided to ditch it for outright balance sheet expansion (QE1).

The TSLF was a little different in function, but similar in end result. Here, the Fed swapped treasuries directly for non-treasury assets. That is, the operations were self-sterilizing. Banks could then use the treasuries as high quality collateral for other operations ... or sell them to raise cash. But again, the process was reversed at maturation.

Sterilization is simply reserves neutral operations (net zero new reserves are created). Paying interest on reserves (IOR) as the Fed has been doing or instituting term deposits as the ECB has done is not sterilization. If the ECB and Fed were sterilizing their operations, their balance sheets should not be growing. IOR and term deposits are simply methods used by central banks to *sequester* reserves. But they do not mind the term sterilization being tossed about as it gives the false impression of inflation neutral.




> For instance, instead of someone in China purchasing a Treasury debt directly from the US Treasury, the Federal Reserve bought directly from the US Treasury, and then put it on the open market for sale. At that point, a person in China could purchase it. I am guessing that the interest rate at that point is better, and the Fed is taking a slight loss on these sales, otherwise the person in China would still be buying direct from the US Treasury.


No, scratch all of the above. It is as simple as I described above. Also remember that the Fed cannot *buy directly* from the treasury. It can have maturing treasuries replaced by the US treasury at treasury auction ... or it can buy from its primary dealers. The gray area is the point I raised in 2009 when the Fed was buying "on the run" treasuries from its primary dealers ...violating the spirit of the rule in the Federal Reserve Act.

The purpose of these sterilized lending programs (TAF, TSLF, etc.) was to aid the banks.

Brian

----------


## TheTexan

> Read more closely ...
> 
> - Primary dealers can be arms of banking institutions (but are separate entities with separate balance sheets)
> - Primary dealers can act as agents on behalf of banking institutions
> - *Primary dealers that are neither arms of banking institutions nor agents of banks can act for their own accounts or other non-banking institutions*



Bank of Nova Scotia, New York Agency   - Global mega bank
BMO Capital Markets Corp.  - Subsidiary of a global mega bank
BNP Paribas Securities Corp.  - Global mega bank
Barclays Capital Inc.  - Global mega bank
Cantor Fitzgerald & Co.  - Global financial services firm that also does global mega banking
Citigroup Global Markets Inc.  - Small mom & pop shop
Credit Suisse Securities (USA) LLC  - Global mega bank
Daiwa Capital Markets America Inc.  - Investment group who's largest member is a global mega bank
Deutsche Bank Securities Inc. - Global mega bank
Goldman, Sachs & Co. - Global mega bank
HSBC Securities (USA) Inc. - Global mega bank
Jefferies & Company, Inc. - Global mega bank
J.P. Morgan Securities LLC - Subsidiary of a global mega bank
Merrill Lynch, Pierce, Fenner & Smith Incorporated - Wealth management division of a global mega bank
Mizuho Securities USA Inc. - Global mega bank
Morgan Stanley & Co. LLC - Global mega financial services firm that also does global mega banking
Nomura Securities International, Inc. - Global mega bank
RBC Capital Markets, LLC - Global mega bank
RBS Securities Inc. - Subsidiary of a global mega bank
SG Americas Securities, LLC - Subsidiary of a global mega subsidiary of a global mega bank
UBS Securities LLC. - Global mega financial services company that also does global mega banking

I don't know why you object to my generalization that all of the primary dealers are global mega banks.  It's a generalization, but it's *accurate*.  Either you're a global mega bank apologist because you work in the industry or (tinfoil) you were planted on this forum to do a job, or you're some kind of grammar nazi Federal Reserve equivalent.

The "open market" operations are restricted to global mega banks.  If anyone who's not a global mega bank wants to do business with the Fed, they have to do it through these global mega bank companies.  Period.

No idea why that's an issue for you.

----------


## gonegolfin

> Cantor Fitzgerald & Co.  - Global financial services firm that also does global mega banking
> 
> I don't know why you object to my generalization that all of the primary dealers are global mega banks.  It's a generalization, but it's *accurate*.


Then we are using a different definition of "bank". I am referring to commercial banks. IOW, banks that engage in fractional reserve lending in our monetary system and that have the ability to create and destroy money supply. This is the difference between Fed asset purchases resulting in increasing reserves and not money supply ... and Fed asset purchases increasing both reserves and money supply.

As an example, Cantor Fitzgerald is not a commercial bank. They are an investment bank and securities dealer.

Are we on the same page now?

Finally, do you understand what I am saying with respect to TOMOs? This is not a source of funding for bank lending. This is a myth.

Also, if you are going to resort to insults, then I am finished.

Brian

----------


## TheTexan

> Then we are using a different definition of "bank". I am referring to commercial banks. IOW, banks that engage in fractional reserve lending in our monetary system and that have the ability to create and destroy money supply. This is the difference between Fed asset purchases resulting in increasing reserves and not money supply ... and Fed asset purchases increasing both reserves and money supply.
> 
> As an example, Cantor Fitzgerald is not a commercial bank. They are an investment bank and securities dealer.
> 
> Are we on the same page now?


Sure, but by making that "clarification" you took us off on a tangent that was entirely irrelevant to the point.  It's just semantics.





> Finally, do you understand what I am saying with respect to TOMOs? This is not a source of funding for bank lending. This is a myth.


Myth or not, it doesn't matter.  You have a solid grasp of the mechanics of the Fed, but not such a solid grasp of austrian economics.

Without the Fed, banks would have to borrow money at the market rate.  But because of the Fed and its actions [for this direct goal], these banks can borrow money at 0%, it really doesn't matter who they are _technically_ borrowing that money from.

The Fed may not be the one making the loan, but the Fed is the one making that loan possible.  These banks don't really care where that 0% loan comes from.  Neither do I.

A lot of people, including myself, understand that the Fed doesn't make direct loans (or rather it's not a primary mechanic they use... but they do do it, and not just the discount window), but it's much simpler just to keep it simple.  Most people don't even know what the Federal Reserve is.  You can't get them engaged on the subject if you start talking about TOMO's.  Zero % interest is a very easy subject to understand, and this is why a lot of people, including myself, choose to use that terminology even though it's _technically_ inaccurate.  For all practical purposes, that's exactly what they do.

If you've got a better, more accurate, way to communicate to people on this subject that doesn't involve complex terminology, then I'm all ears

----------


## gonegolfin

> Sure, but by making that "clarification" you took us off on a tangent that was entirely irrelevant to the point.  It's just semantics.


No, I was following your provided example earlier stating " ... is restricted to *Goldman Sachs, Citibank*, and a handful of other global mega banks.". *These are commercial banks*. You then evidently (in your own mind at least) expanded the discussion later to include investment banks and securities dealers. Well, it is not a far stretch to think that the primary dealers are "investment banks" and securities dealers. Of course they would be. They also must be well capitalized. This only makes sense as the market makers.




> Myth or not, it doesn't matter.  You have a solid grasp of the mechanics of the Fed, but not such a solid grasp of austrian economics.


Certainly it matters. The banks having the ability to borrow from the Fed at will (even at fed funds rates) would be a whole different can of worms.

You know nothing about my background in Austrian economics. I have a firm grounding here and have been studying it for years. But I also believe that to further the cause, you cannot look ignorant propagating nonsense when discussing the Fed and how it functions in our system. Those folks get discounted and written off by the folks that need persuasion.




> Without the Fed, banks would have to borrow money at the market rate.  But because of the Fed and its actions [for this direct goal], these banks can borrow money at 0%, it really doesn't matter who they are _technically_ borrowing that money from.


Banks do borrow at the market rate, if they are in the market. Banks are not borrowing money at 0% because they cannot. There is no market at 0%. There is also virtually no market for federal funds (overnight lending) and the ones that do engage are the small banks that need to meet their reserves requirements. Not the big banks. The only lenders here are the GSAs and there is not much to lend. The only play here is for some banks to play a little arbitrage, but only because they Fed is presently paying IOR at a rate just above the trading federal funds market rate. But there are precious little funds available for such a play because there are not many excess reserves that are ineligible for IOR payments. So, in case you have not grasped it yet ... the federal funds market is dead.

Regarding monetary policy where IOR does not exist, borrowing reserves in the federal funds market and then lending those reserves is nonsensical ... from either an interest rate perspective or a maturity perspective. There is no profit to be had here. Meanwhile, the fed funds loan expires daily (overnight lending). Bank investment portfolios cannot be managed in that way.




> The Fed may not be the one making the loan, but the Fed is the one making that loan possible.  *These banks don't really care where that 0% loan comes from*.  Neither do I.


I will try this one more time. It seems that you did not understand my explanation of Fed open market operations. If it is over your head, just let me know and I will move on. Not a problem.

*Now, please tell me where this 0% loan is coming from? Whom is making this magical loan that is the source of funding to banks achieving vast profits via re-lending these funds?*

Brian

----------


## TheTexan

> No, I was following your provided example earlier stating " ... is restricted to *Goldman Sachs, Citibank*, and a handful of other global mega banks.". *These are commercial banks*. You then evidently (in your own mind at least) expanded the discussion later to include investment banks and securities dealers. Well, it is not a far stretch to think that the primary dealers are "investment banks" and securities dealers. Of course they would be. They also must be well capitalized. This only makes sense as the market makers.


The entire point was that it's not an open market, not what kind of bank it is.  And you're the one that brought up commercial vs investment - I never specified one way or the other.  Commercial bank, investment bank, I get they are two very different things, but they are *both banks*.  How is referring to global mega investment *banks* as "global mega banks" inaccurate?

You're $#@!ing impossible to deal with man.




> If it is over your head, just let me know and I will move on. Not a problem.


That's the only card you know how to play.  I've gone through your post history, and you love finding minor details that's entirely irrelevant to their point, and go into depth and use it as a "gotcha!"  These people people have legitimate, and accurate, criticisms regarding the fed, and then you swoop in and "correct them."  While everything you say is generally factual and correct, it's also very often irrelevant to the point and serves as simply a distraction.

I'm not sure why you do that.

----------


## TheTexan

> *Now, please tell me where this 0% loan is coming from? Whom is making this magical loan that is the source of funding to banks achieving vast profits via re-lending these funds?*


Are you really getting on my ass because I said 0% instead of 0.25%?

----------


## Zippyjuan

> The entire point was that it's not an open market, not what kind of bank it is.  And you're the one that brought up commercial vs investment - I never specified one way or the other.  Commercial bank, investment bank, I get they are two very different things, but they are *both banks*.  How is referring to global mega investment *banks* as "global mega banks" inaccurate?
> 
> You're $#@!ing impossible to deal with man.
> 
> 
> 
> That's the only card you know how to play.  I've gone through your post history, and you love finding minor details that's entirely irrelevant to their point, and go into depth and use it as a "gotcha!"  These people people have legitimate, and accurate, criticisms regarding the fed, and then you swoop in and "correct them."  While everything you say is generally factual and correct, it's also very often irrelevant to the point and serves as simply a distraction.
> 
> I'm not sure why you do that.


Investment banks are not allowed to use any services like borrowing money from the Fed. If they need money, they have to raise it from other investors or take out loans from commercial banks or issue stock shares.  They operate under very different rules.

----------


## TheTexan

> Investment banks are not allowed to use any services like borrowing money from the Fed. If they need money, they have to raise it from other investors or take out loans from commercial banks or issue stock shares.  They operate under very different rules.


That still has nothing to do with my original post, or any of my subsequent posts.  

I only said Goldman Sachs is a primary dealer and a global mega bank.  Both of these statements are true.  Why he decided to interject this knowledge about commercial vs investment... $#@! if I know.  I still have no idea why he brought it up.

----------


## Zippyjuan

If the Fed buys securities from Goldman Sachs  (or other primary dealers), they are not giving Goldman Sachs any special treatment.  They (Goldman) aren't getting any free money from the Fed.  They aren't getting "reserves". No "interest free" loans.  The Fed is just another buyer of what Goldman is selling. Neither the Fed nor Goldman get any special rates on the deal- the purchases are at whatever is the going price of the securities. Any other financial investor can buy the Treasuries or whatever at the exact same price from them. Goldman gets the same revenue.  

The Fed CAN credit reserves to a commercial bank- not an investment bank.  A commercial bank (as long as it is a member of the Federal Reserve System) may borrow money from the Fed (in exchange for collateral) and an investment bank can't.  Investment banks are not fractional reserve banks.

----------


## TheTexan

> The Fed is just another buyer of what Goldman is selling. Neither the Fed nor Goldman get any special rates on the deal- the purchases are at whatever is the going price of the securities.


The Fed isn't just another buyer, though.  The Fed is a buyer with very, very, very deep pockets.

This means that if Goldman puts product X on the market, it will sell for Y.

If a non-PD puts the same product X on the market, it will sell for < Y.

----------


## Brian4Liberty

> Not quite. The above would not make sense as you stated it. *The Fed was purchasing non-treasury assets and offsetting this reserve creation by selling equal amounts of treasuries from its portfolio ... at least until the Fed started running low on US treasuries and needed a Plan B.*
> 
> What was happening here was simply changes in the composition of the Fed balance sheet. Asset swaps if you will ... though the Fed purchased assets were purchased at a discount (haircut) according to the class of asset. The banks participating in these special programs were able to raise more cash by selling certain assets (again, at a discount) until the process was reversed at maturation of the loan term.
> 
> The above describes how the TAF functioned. It was a intermediate term loan program that kept rolling over until they decided to ditch it for outright balance sheet expansion (QE1).
> ...


From who was the Fed purchasing non-treasury assets? And how does the Fed get Treasuries into it's portfolio in the first place?

----------


## Zippyjuan

The Fed uses a bidding process when they want to purchase securities. All of the primary dealers compete against each other. 

http://www.quora.com/Why-does-the-Fe...m-the-treasury



> They don't just buy from Goldman Sachs -- they buy from all the primary dealers in an auction. The primary dealers are the same institutions that are eligible to buy from the Department of Treasury (United States) during monthly bond auctions: banks like Goldman, Morgan Stanley, JPMorgan Chase, Citigroup Inc., etc.
> 
> Here's how the process works:
> •A few days in advance of the auction, the U.S. Federal Reserve provides a list of the specific bonds and amounts they'd like to buy
> •At a specific time, all the primary dealers submit their best offers to the Fed, i.e. they submit the lowest price at which they'd be willing to sell.
> •The Fed buys from those dealers who offer the lowest price.
> 
> They buy via auction rather than buying from the Treasury since it increases transparency and helps them get a better price.


This is the same way the Treasury sells them.  The Treasury announces how many notes they want to sell and take bids. The winning "bid" is the highest amount which will allow the Treasury to sell all the notes they wanted to in that auction.  All buyers get the same price- even if they bid higher.

----------


## TheTexan

> The Fed uses a bidding process when they want to purchase securities. All of the primary dealers compete against each other. 
> 
> http://www.quora.com/Why-does-the-Fe...m-the-treasury
> 
> 
> This is the same way the Treasury sells them.  The Treasury announces how many notes they want to sell and take bids. The winning "bid" is the highest amount which will allow the Treasury to sell all the notes they wanted to in that auction.  All buyers get the same price- even if they bid higher.


This doesn't address my point at all.  Consider carefully what you just said, "All of the primary dealers compete against each other."  They compete... against _each other_

It's a closed market.  Between the Fed and the primary dealers.  Just because there is a bidding process, does not make this any less of a scam.  Your post does not address my earlier point:




> The Fed isn't just another buyer, though. The Fed is a buyer with very, very, very deep pockets.
> 
> This means that if Goldman puts product X on the market, it will sell for Y.
> 
> If a non-PD puts the same product X on the market, it will sell for < Y.


Of course, the non-PD can make an agreement for Goldman to sell the product X for them, but Goldman will get their cut.

----------


## Brian4Liberty

We are a bit off original thread topic, but here's one description of the QEs:

----------


## Brian4Liberty

> The Fed uses a bidding process when they want to purchase securities. All of the primary dealers compete against each other.


So once again, the bottom line is that the Fed is purchasing US Treasuries (albeit through intermediaries). And a variety of players are profiting.

----------


## gonegolfin

> From who was the Fed purchasing non-treasury assets? And how does the Fed get Treasuries into it's portfolio in the first place?


Under the Term Auction Facility (TAF), the Fed was accepting approved collateral directly from the commercial banks (depository institutions) in exchange for reserves. This was done in auction format, as the name of the program suggests. The TAF was a loan program with a fixed amount of funds being auctioned for each loan term. 

When the Fed purchases treasuries (as well as Agency debt and Agency MBSs) via traditional trading desk open market operations (either temporary or permanent), the Fed conducts these purchases through its primary dealers. Ownership of the treasury securities are simply transferred to the Fed and kept as assets on their balance sheet. If the primary dealer is conducting the sale on behalf of a commercial bank (frequently the case), the Fed simply credits the reserves account of that commercial bank when it receives the treasury securities.

Brian

----------


## Mini-Me

Brian, thank you for your in-depth explanations here.  I feel like I'm finally filling the most crucial gaps in my understanding, even if every answer leads to a new question.




> And regarding your IOR sentence above ... the bank does not deposit those reserves. Those reserves have already been credited by the Fed. And yes, the Fed is paying these banks interest on their reserves. In fact, they do not pay interest for just excess reserves (and just reserves on deposit with the Fed) ... they pay interest on all reserves. This includes required reserves as well as vault reserves.
> ...
> Maybe I am not the right person to ask as I have repeatedly written in my Financial Sense articles that I think this is part of the Fed's plan to stealthily recapitalize the banking system. It takes time, but it is time they have. A long, slow, painful process that benefits the banks.
> 
> The interest payments are simply additional reserves credits issued by the Fed.


Wow...the "interest on all reserves" part sounds extraordinarily shady, even by the Fed's standards.  It essentially sounds like free money for banks based on how much money they already hold in reserves, which grossly distorts the meaning and purpose of the term "interest."

However, I'm now quite confused about something:  The fact that interest is paid on all reserves - not just excess reserves or those on deposit with the Fed - seems to defeat the purpose of IOR, because if banks get the "interest" payments from the Fed regardless of how they're using their reserves, doesn't that limit the effectiveness of IOR in regulating interest rates and lending?  After all, "interest no matter what, as long as you don't bleed reserves" seems like a poor way of incentivizing any particular lending behavior.  Clearly I'm misunderstanding something here...fill me in?





> You are really asking what happened on Day 1, right? To get a fiat currency central bank managed monetary system jump-started, you need to buy an initial round of assets. These assets traditionally fall into two categories ... sovereign debt and Gold. This is how the Federal Reserve system got started. The quality of assets are important because these are the securities that back the currency and money supply. This is why I harp on the declining composition of the Fed balance sheet ... both in terms of asset quality and maturity (asset risk and interest rate risk). Meanwhile, the financial media seems to be fixated on only the size of the balance sheet. Both are important. Agency debt and Agency MBSs, unfortunately, have become a core holding of our central bank. Meanwhile, average duration continues to rise and is at unprecedented levels.


From the perspective of a fiat money system propped up by legal tender laws and petrodollar hegemony, why is the composition of the Fed's balance sheet so important?  Granted, the Fed needs to possess valuable assets instead of junk if it plans on extinguishing money by selling its assets back on the open market, but is there a reason related to the value of the dollar that I'm not seeing?

After all, it's not like the dollar is backed by gold in the sense of being redeemable for any fixed amount.  That bygone policy previously gave the dollar value as a proxy for gold (which also led to expectations that it wouldn't be inflated).  If FRN's were redeemable on demand at the Fed for a fixed quantity of some asset on the Fed's balance sheet (let's handwave the vague meaning of "quantity" for assets that aren't commodities like gold ), then the composition of those assets would obviously contribute to the value of the dollar, but as it stands, I'm having trouble seeing any real connection.  In the absence of any kind of redeemability, the "backing" of the currency by the Fed's balance sheet just seems way too abstract (and disconnected from what the currency can actually be exchanged for) to matter, in and of itself.

Then again, taking the long view that the dollar is doomed to fail in the first place, I suppose the Fed's balance sheet composition might matter from the standpoint of switching over to another currency system.  If another state-sponsored gold standard were ever implemented (which could be a terrible idea for a number of reasons), it would certainly matter whether the Fed's reserves at the end of this current system were composed of gold or toxic MBS's (and depending on the situation, I might be liable to value Treasuries closer to the latter ).  The same might apply to any kind of switch to a regional or global fiat currency (God forbid), since the Fed's balance sheet could play a role in determining exchange rates and/or the US's stake in such a currency.




> Over long periods of time, the Fed engages in asset purchases (at considerably lower levels than that of post September 2008). These asset purchases increase reserves in the banking system (liability side of the balance sheet) and obviously add to the asset side of the balance sheet. Increased reserves means increased monetary base. Over time, some of these reserves become currency in circulation. These types of systems rely on continued inflation (even if it is modest) to survive. This is how it is achieved. From the period of summer 1996 to summer 2006, the monetary base increased from $443 billion to $804 billion. In 1959 it was $40 billion.


Is it really necessary for the system to be inflationary just to survive though?  I understand that the human element virtually guarantees inflation as an inevitable result of fiat money, but in theory, couldn't the Fed technically seek to maintain a stable monetary base under all conditions, thereby mimicking a gold standard (without any new gold mined)?





> All systems start from scratch ... but that does not mean that the government did not already have assets to use as backing for the central bank and currency. It did (Gold). The Fed "purchased" them and as such, hold them as asset and liability entries on its balance sheet. The government also issued debt which the central bank purchased.
> 
> Brian


That cleared up a LOT for me.  Thanks.

----------


## Danan

> Are you really getting on my ass because I said 0% instead of 0.25%?


I guess what he's implying is that against popular belief banks cannot get significant amount of loans for zero or near zero percent interest, neither directly through the Fed nor indirectly through it's policies. The only market to which this often mentioned interest rate does apply is miniscule in size and unimportant at this point in time. I guess he further suggests (though I don't want to put words in his mouth) that in fact banks do have to finance themselves through the market for savings and loans, which you suggested would only be true in absence of the Fed.

I'd like to know if I described gonegolfin's position correctly. It's certainly a very interesting point of view.

This very detailed in-depth analysis of specific policies could certainly be useful in order to dismiss common myths, such as, "Banks get newly created money for almost 0% interest and can then invest it or put it for more interest in Fed-accounts!" (That is, if I understand Bryan correctly and if what he says is also actually true - but he seems quite knowledgeable.)

But it obviously fails to describe the greater scheme of things. How does the existence of the Fed (and also Federal Deposit Insurance, etc.) influence the loanable funds market? What are the implications for the banking sector? Are they profiting from it and if yes how and by how much? How loses? Are there implications of what Bryan states for the Austrian Business Cycle Theory (if the Fed wouldn't alter the market for loanable funds at all, only Fractional Reserve Banking would start the Business Cycle, which could theorectically also exist without the Fed)?

----------


## TheTexan

If there aren't many loans happening at a near zero rate, it doesn't mean near zero loans aren't available.  It just means they don't need the loan.  If any of these banks offered to pay "near zero + .01"... I'm sure another bank would be happy to oblige them.

----------


## Danan

> From the perspective of a fiat money system propped up by legal tender laws and petrodollar hegemony, why is the composition of the Fed's balance sheet so important?  Granted, the Fed needs to possess valuable assets instead of junk if it plans on extinguishing money by selling its assets back on the open market, but is there a reason related to the value of the dollar that I'm not seeing?
> 
> After all, it's not like the dollar is backed by gold in the sense of being redeemable for any fixed amount.  That bygone policy previously gave the dollar value as a proxy for gold (which also led to expectations that it wouldn't be inflated).  If FRN's were redeemable on demand at the Fed for a fixed quantity of some asset on the Fed's balance sheet (let's handwave the vague meaning of "quantity" for assets that aren't commodities like gold ), then the composition of those assets would obviously contribute to the value of the dollar, but as it stands, I'm having trouble seeing any real connection.  In the absence of any kind of redeemability, the "backing" of the currency by the Fed's balance sheet just seems way too abstract (and disconnected from what the currency can actually be exchanged for) to matter, in and of itself.


I wrote a whole paragraph on why I believe it matters. But I deleted it, because after further thinking about the subject, it starts to make less sense every minute.

My first explanation was that a massive contraction of the Fed's balance sheet, due to defaults on poisenous assets like mortgage-backed securites, would rapidly increase the scarcity and thus the price of the currency.

However I have a few problems with that theory. Why does it matter if the Fed or private banks are holding these assets at the time they have to be written off the books? Obviously if the Fed has to write something off their balance sheets it was a "bad investment" to purchase it at this price and they make losses on these papers (of course they've known that in advance). Bad those losses are not really the point. It's the contraction of the money supply due to the contraction of the balance sheet that I don't really understand.

Once the Fed owns these papers, a default means that the money supply shrinks, but if private banks own them, a defauld only results in big losses, but the money supply remains unchanged? I fail to see how that makes any sense.

If the Fed didn't buy these assets and the banks had to write them off the books, would this in any way be reflected on the Fed's balance sheet too? I don't see how, to be honest. Do the balance sheets of private banks influence a different money base (like M3, or whatever) and if yes, what's the difference? How does it change the value of the currency differently if the central bank has to contract it's balance sheet or if a private bank has to do the same thing?

I guess what it comes down to is: Can a private bank increase the money supply without having the Fed as some kind of a proxy (I've seen people arguing on whether a newly created loan is actually an increase in the money supply) and if yes, how is this different than if the Fed increases the money supply by purchasing assets out of thin air?


The economy could be so easy to understand without governments. =/

----------


## Danan

> If there aren't many loans happening at a near zero rate, it doesn't mean near zero loans aren't available.  It just means they don't need the loan.  If any of these banks offered to pay "near zero + .01"... I'm sure another bank would be happy to oblige them.


The way I understand it, they couldn't finance their business by those loans, because they are extremely limited, only lend out for liquidity purposes and have to be secured by assets.

It's not that I approve of them. I don't want to see a central bank at all (obviously). It's just that it doesn't seem that these specific loans are anywhere near as important as the other crimes the Fed is committing.

And the, "Banks get money for 0% interest rates!"-meme seems to be a distraction. It doesn't explain why banks would bother to get new depositors (and pay them interest).

----------


## Brian4Liberty

To keep it simple. one of my main questions revolves around Federal government debt (and deficit spending). My assumption is that all of that debt must be sold by the Treasury (T-Bills, Bonds and Notes). Who is buying that debt? What percent of the debt is eventually being purchased by the Federal Reserve? Rumor has it that most people don't want to buy US Treasury debt anymore (China, for instance).

So with our latest version of QE, the Federal Reserve is purchasing toxic debt from Wall St. Is there an agreement that Wall St will turn around and purchase US Treasuries with that money? How is the debt being financed?

----------


## Paul Or Nothing II

> Collectively, yes.  Individually, the bankers are making the big $$$.  BIG $$$.  Huge incentive to keep the status-quo.
> 
> If one banker takes 10% out of 10 trillion, and distributes the other 9 trillion relatively equally across everybody (in reality it isn't evenly distributed but that's not the point), the primary benefactor is the banker.
> 
> Everybody else, didn't really earn much.  Their small fraction of the 9 trillion was diluted through inflation.  They do benefit, but they do not have nearly as much incentive to keep this system up and running as the bankers.


You don't seem to grasp that whatever banks earn thru lending is what market gives them for their services & whatever they earn thru buying/selling Treasuries is what they earn for being market-makers to government for their debt.

Right now, they borrow at 0.XX% & lend at 2-3% or whatever, without Fed they'd be borrowing at let's say 4-5% & lending at 7-8% or whatever, the point is that they earn for providing a service & markets decide how much they earn & that depends on supply & demand of credit, & the more the credit expands the less they earn per loan while they earn more per loan when credit is limited so they'll be pretty profitable under any system & anyone who believes in capitalism should have little problem with anyone making money by providing goods/services. So I still stand by the statement banks are NOT necessarily the biggest beneficiaries of the system, GOVERNMENT IS!

As for the system, as I've said before, we live in a majority-rule society so any system that exists, can only exist with majority-consent & majority clearly aren't interested in stopping the government or the Fed, they are too busy collecting welfare & robbing others for it through socialism.

----------


## Paul Or Nothing II

> why is the composition of the Fed's balance sheet so important?





> Once the Fed owns these papers, a default means that the money supply shrinks, but if private banks own them, a defauld only results in big losses, but the money supply remains unchanged? I fail to see how that makes any sense.
> 
> If the Fed didn't buy these assets and the banks had to write them off the books, would this in any way be reflected on the Fed's balance sheet too? I don't see how, to be honest. Do the balance sheets of private banks influence a different money base (like M3, or whatever) and if yes, what's the difference? How does it change the value of the currency differently if the central bank has to contract it's balance sheet or if a private bank has to do the same thing?


The reason quality of assets on Fed's Balance Sheet matters is because if those assets couldn't be sold off at least at par & if they can only be sold at enormous losses as is likely to occur then those losses will have to be borne by Treasury.

Ever heard Ron Paul saying, _"Why is Fed buying all these BAD ASSETS, why are they putting this on taxpayers' tab?"_. etc etc. It's precisely because as & when these losses occur, Treasury will have to bear them since despite all the talk of Fed being "private", it really is just another arm of the government & just as Fed hands over its profits to Treasury, it must also bear Fed's losses, which means that essentially it's the taxpayers that are on the hook!

I'd had a discussion with someone explaining him about how Fed's Balance Sheet works but he'd bought too much into conspiracies & therefore he wasn't being objective with respect to Fed & how it ACTUALLY works but may be you guys might be interested in this - http://www.ronpaulforums.com/showthr...=1#post4405329

As "gonegolfin" has said, all of these myths & conspiracy theories just discredit the liberty movement; yes there are issues with Fed & many other things but that doesn't mean that any fallacious against them is necessarily true; I wish more people would actually spend time on learning the philosophy of liberty & sound economics than looking out for the next big conspiracy theory!

----------


## TheTexan

> banks are NOT necessarily the biggest beneficiaries of the system, GOVERNMENT IS!


What's the difference, they own it~

----------


## Aurave

> My assumption is that all of that debt must be sold by the Treasury (T-Bills, Bonds and Notes). Who is buying that debt?


 Yes, it sells. The treasury holds auctions when they issue debt. You can find out more at treasurydirect. I will never in my life buy a government bond so I don't care to know more.




> What percent of the debt is eventually being purchased by the Federal Reserve? Rumor has it that most people don't want to buy US Treasury debt anymore (China, for instance).


The last figures on China I've seen are from 2011, they held about $1.3 trillion. Country specific figures for private foreign holders are nebulous guesses though.

For the latest figures on ownership of treasury securities you'll want to look at the flow of funds release from the fed here: http://www.federalreserve.gov/econre...isticsdata.htm 
Click on (Flow of Funds Accounts of the United States - Z.1). You want levels, not flow, of treasury securities which is L.209 and you can jump there by going to page 104 in the full release.

Total liabilities of presumably the treasury are listed as $11 trillion.

The Fed holds about $1.6 trillion ~ 15%
Foreign holders about $5.3 trillion ~ 48%

You can look at the breakdowns listed in the release there if you want to know more. Keep in mind that figures such as this and the categories used can be defined in a myriad of ways.

----------


## Danan

> The reason quality of assets on Fed's Balance Sheet matters is because if those assets couldn't be sold off at least at par & if they can only be sold at enormous losses as is likely to occur then those losses will have to be borne by Treasury.
> 
> Ever heard Ron Paul saying, _"Why is Fed buying all these BAD ASSETS, why are they putting this on taxpayers' tab?"_. etc etc. It's precisely because as & when these losses occur, Treasury will have to bear them since despite all the talk of Fed being "private", it really is just another arm of the government & just as Fed hands over its profits to Treasury, it must also bear Fed's losses, which means that essentially it's the taxpayers that are on the hook!


I'm aware that this would "cause losses". But to be honest, in reality those losses already occured at the time they purchased those papers above market value. It's just a matter of accounting at this point, because real wealth doesn't care for financial years.

But that's not the "problem" I was talking about. Of course it would hurt, but I was more interested in the monetary consequences of a shrinking balance sheet. Because ironically if the balance sheet of the Fed roughly represents the amount of the currency in circulation, then the value of the Dollar would have to *up* , due to it's higher scarcity.

So would a giant devaluation of the Fed's mortgage backed securities (or even a partial default of the US government) cause the price of the Dollar to go up? That sounds a little bit counter-intuitive.

----------


## gonegolfin

> Brian, thank you for your in-depth explanations here.  I feel like I'm finally filling the most crucial gaps in my understanding, even if every answer leads to a new question.


You are welcome ... glad I can help.




> Wow...the "interest on all reserves" part sounds extraordinarily shady, even by the Fed's standards.  It essentially sounds like free money for banks based on how much money they already hold in reserves, which grossly distorts the meaning and purpose of the term "interest."


Yes, it is a method used by central banks to sequester reserves while still providing some incentive for lending/investment. But given the extreme level of bank reserves, the Fed is also using it as a tool to recapitalize the banks. It is the first time the Fed has used it (to my knowledge), but not the first time it has been used by central banks. Obviously it is now being done on an unprecedented scale.




> However, I'm now quite confused about something:  *The fact that interest is paid on all reserves - not just excess reserves or those on deposit with the Fed - seems to defeat the purpose of IOR, because if banks get the "interest" payments from the Fed regardless of how they're using their reserves, doesn't that limit the effectiveness of IOR in regulating interest rates and lending?*  After all, "interest no matter what, as long as you don't bleed reserves" seems like a poor way of incentivizing any particular lending behavior.  Clearly I'm misunderstanding something here...fill me in?


Thank you for asking this question, I was hoping someone would. This illustrates that you are paying close attention and trying to understand what the Fed is doing ... keeping your eye on the ball ... unlike some others that continue to ignorantly argue a position because the truth does not meet their preconceived notions (positions they would like to be true) learned from faulty propaganda/writings. After a while, those folks simply need to visit the ignore list.

#1 Being that the primary goal of the Fed in all of this to recapitalize the banking system, this is more *completely* done by paying interest on *all reserves*. They also want to keep interest rates low for obvious reasons, which is why they are not paying more than 25 bps and using IOR as the short term market rate.

#2 Paying something on reserves (instead of nothing at all) is still somewhat of a disincentive to lend, *even if that interest is being paid on all reserves*. It becomes a decision of whether to sit on those excess reserves and earn 25 bps (play it conservative) ... or invest some excess reserves, thus creating more required reserves (and still earning interest on RR+ER), *but now taking on more risk* with the investment. This allows banks to construct a more balanced portfolio with respect to risk (risk management).

#3 Despite the added investment risk noted above, paying interest on all reserves still provides enough incentive to move some of these excess reserves into the economy. The banks cannot survive on 25 bps alone (though it certainly helps) and will look for opportunities to employe *some* of those excess reserves (and we can track that directly). Meanwhile, if the Fed paid interest on only excess reserves, *in really hard times it would create the possibility of a liquidity trap as a side effect*. It does not want that ... and we are currently nowhere close to that ... despite the opinion of the Seeking Alpha article I commented on (and provided direct evidence as to why this is not the case) this week that postulates we are presently in a liquidity trap.

It is a balanced approach in the context of managing the monetary base and money supply, with the primary goal of recapitalizing the banking system.

The Fed views interest paid on the required reserves portion of IOR as compensation for what is considered a "tax" on depository institutions. That is, depository institutions are required to hold a certain amount of reserves (required reserves) and are unable to earn anything on those funds (the Fed views this as a tax as this money is in limbo). I do not agree with this notion as I view it as a cost of doing business ... I view it as necessary collateral for conducting operations. But the much bigger issue is interest paid on excess reserves.





> From the perspective of a fiat money system propped up by legal tender laws and petrodollar hegemony, why is the composition of the Fed's balance sheet so important?  *Granted, the Fed needs to possess valuable assets instead of junk if it plans on extinguishing money by selling its assets back on the open market*, but is there a reason related to the value of the dollar that I'm not seeing?


This is precisely the reason (you have read/understood my articles). This may be much more important than you realize and *is* directly related to the value of the US Dollar. If the Fed experiences losses in its portfolio (whether via asset quality or interest rate movements), it is then hampered in its ability (based on the degree of the losses) to execute monetary policy. This could mean, for example, the inability of the Fed to reign in excess reserves it would like to extinguish (because of monetary inflation that is taking place). The inability for the Fed to do this would stoke more inflation fears. This would also prompt the banks to do something with their excess reserves (protecting themselves) as the dollar fell ... and this would ripple to other dollar holders. There would be one of several responses by authorities, but each would have their own set of ramifications for the dollar. One response might be for the Fed to obtain approval from Congress to issue its own interest bearing debt. And yes, this would be interesting because this debt would compete with US Treasury debt in the marketplace. This interest bearing debt would be sold by the Fed to extinguish reserves. And yes, the Fed would be holding its own debt as an asset on its balance sheet. Another response (if required) might be a Fed recapitalization effort via the US Treasury.




> *Is it really necessary for the system to be inflationary just to survive though?*  I understand that the human element virtually guarantees inflation as an inevitable result of fiat money, but in theory, couldn't the Fed technically seek to maintain a stable monetary base under all conditions, thereby mimicking a gold standard (without any new gold mined)?
> 
> That cleared up a LOT for me.  Thanks.


In theory, you may be correct. In practicing, mimicking a gold/valued asset standard (without actually implementing a gold/commodity/valued asset standard) would be extraordinarily complex to do. As big as banker egos are, I am not even sure they would think it is feasible. And then (still in practice) you still have the politicians. They would apply pressure to bleed the system away from the light of day. This happened under our Gold standard that ended under Nixon. We were cheating and the world called us on it.

Brian

----------


## gonegolfin

> I guess what he's implying is that against popular belief banks cannot get significant amount of loans for zero or near zero percent interest, neither directly through the Fed nor indirectly through it's policies. The only market to which this often mentioned interest rate does apply is miniscule in size and unimportant at this point in time. I guess he further suggests (though I don't want to put words in his mouth) that in fact banks do have to finance themselves through the market for savings and loans, which you suggested would only be true in absence of the Fed.
> 
> I'd like to know if I described gonegolfin's position correctly. It's certainly a very interesting point of view.


Yes Danan, regarding this topic your summary is accurate, but a few more specifics should be provided. Some of the below you address above ... and some of the below is adding to your summary.

1) The Fed does not loan to the commercial banking system in any capacity, except via the primary credit facility (discount window) and some of the specialized lending facilities they put into place during the recent  "financial crisis". These facilities are now defunct.

2) As far as indirect is concerned ... before 2009 the Fed managed the federal funds rate by buying/selling treasuries, agency debt, and agency MBSs from/to its primary dealers. The sole purpose was to manage the supply of reserves to achieve the desired federal funds rate in the context of daily demand of reserves. This was not a mechanism to push reserves into the system that could then be used banks for lending. First, half the time the Fed was removing money from the system. Over time (even short periods of time), the net amount of reserves pushed into the system is zero (it is presently at -$94 billion). We are also not talking about much money here. Second, the maturity of these Fed operations is typically one to several days (and funds borrowed by the banks from other banks in the federal funds market ... *are overnight*). It is nonsensical to believe that such a maturity of operations could be used as the basis/foundation for bank lending and investment. 

3) The Fed has had $0 in repurchase agreements on its weekly balance sheet since the beginning of 2009. As I stated, the Fed is actually net negative with respect to reserve creation via TOMO operations.

The reserves supplied by the Fed to the banking system for operations (lending/investing) and non-operations (squatting) have been provided through outright asset purchases (Fed balance sheet expansion). Not loans.




> This very detailed in-depth analysis of specific policies could certainly be useful in order to dismiss common myths, such as, "Banks get newly created money for almost 0% interest and can then invest it or put it for more interest in Fed-accounts!" (That is, if I understand Bryan correctly and if what he says is also actually true - but he seems quite knowledgeable.)


Precisely.

Brian

----------


## gonegolfin

> As "gonegolfin" has said, all of these myths & conspiracy theories just discredit the liberty movement; yes there are issues with Fed & many other things but that doesn't mean that any fallacious against them is necessarily true; I wish more people would actually spend time on learning the philosophy of liberty & sound economics than looking out for the next big conspiracy theory!


Well said.

Brian

----------


## Brian4Liberty

Once again, without getting into the lowest levels of detail, how is the Federal spending and Federal debt being financed?




> When the Fed purchases treasuries (as well as Agency debt and Agency MBSs) via traditional trading desk open market operations (either temporary or permanent), the Fed conducts these purchases through its primary dealers. Ownership of the treasury securities are simply transferred to the Fed and kept as assets on their balance sheet. If the primary dealer is conducting the sale on behalf of a commercial bank (frequently the case), the Fed simply credits the reserves account of that commercial bank when it receives the treasury securities.


Is the Fed doing this in trivial amounts, or large amounts? Is the Fed enabling the process of Federal debt?




> Yes, it sells. The treasury holds auctions when they issue debt. You can find out more at treasurydirect. I will never in my life buy a government bond so I don't care to know more.
> 
> The last figures on China I've seen are from 2011, they held about $1.3 trillion. Country specific figures for private foreign holders are nebulous guesses though.
> 
> For the latest figures on ownership of treasury securities you'll want to look at the flow of funds release from the fed here: http://www.federalreserve.gov/econre...isticsdata.htm 
> Click on (Flow of Funds Accounts of the United States - Z.1). You want levels, not flow, of treasury securities which is L.209 and you can jump there by going to page 104 in the full release.
> 
> Total liabilities of presumably the treasury are listed as $11 trillion.
> 
> ...


The National Debt clock is now at over $16 trillion. Is the difference between 16 and 11 due to additional debt created since your figures were reported, or is there an additional debt mechanism other than the Treasury issuing debt?

So we have a figure of $1.6 trillion or 15% in direct Federal Reserve purchases of Treasury debt. (Not a trivial amount).

So what other mechanisms are used by the Federal Reserve to help finance the debt? We know that the Federal Reserve is purchasing toxic debt from Wall St. Is some of that money turned around and invested in Treasuries? How much money would that entail?

----------


## Brian4Liberty

> As "gonegolfin" has said, all of these myths & conspiracy theories just discredit the liberty movement; yes there are issues with Fed & many other things but that doesn't mean that any fallacious against them is necessarily true; I wish more people would actually spend time on learning the philosophy of liberty & sound economics than looking out for the next big conspiracy theory!





> Well said.
> 
> Brian


We need to be a little more specific, but not too detailed! 

What are the (untrue) myths and conspiracy theories?

----------


## TheTexan

> As far as indirect is concerned ... before 2009 the Fed managed the federal funds rate by buying/selling treasuries, agency debt, and agency MBSs from/to its primary dealers. The sole purpose was to manage the supply of reserves to achieve the desired federal funds rate in the context of daily demand of reserves. This was not a mechanism to push reserves into the system that could then be used banks for lending. First, half the time the Fed was removing money from the system. Over time (even short periods of time), the net amount of reserves pushed into the system is zero (it is presently at -$94 billion). We are also not talking about much money here. Second, the maturity of these Fed operations is typically one to several days (and funds borrowed by the banks from other banks in the federal funds market ... *are overnight*). It is nonsensical to believe that such a maturity of operations could be used as the basis/foundation for bank lending and investment.


Considering that reserves have very obviously gone up since the Fed was created, I'd say it's very difficult to say the net amount of reserves pushed into the system over time is zero.

All funds are fungible.  Any funds that enter the system can be used for anything. And considering the proximity of the bankers to the printing press, I think it's fairly unlikely that the money the Federal reserve adds to the market isn't being used for primarily loans* and investments.

Unless the Fed has some policy of making sure the PD's spend all their money on home-made products, of course.

(*Taking interest on reserve is also a loan, but is not called a loan.  Because they are getting paid to keep reserves, they are essentially loaning that money to the Fed.  Its no different than loaning it to the Fed, except the money stays on the bank's books.)

----------


## Aurave

> The National Debt clock is now at over $16 trillion. Is the difference between 16 and 11 due to additional debt created since your figures were reported, or is there an additional debt mechanism other than the Treasury issuing debt?


Those figures are from last Friday. The difference is intragovern_mental_  debt. Stuff that cant be sold on the market, most of it, or a lot of it, is in the social security "trust fund". Debt the government owes to itself (lol?)

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## TheTexan

> Those figures are from last Friday. The difference is intragovern_mental_  debt. Stuff that cant be sold on the market, most of it, or a lot of it, is in the social security "trust fund". Debt the government owes to itself (lol?)


I think social security is a legitimate debt owed to the American people... which makes it a shame it will never be paid back

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## Brian4Liberty

> Those figures are from last Friday. The difference is intragovern_mental_  debt. Stuff that cant be sold on the market, most of it, or a lot of it, is in the social security "trust fund". Debt the government owes to itself (lol?)


So it's money "borrowed" from the SS trust fund?

----------


## furface

"Why the modest inflation?" Because very few people have any money.  The Fed keeps printing money, but it just gets pissed down the government toilet on its way to the elite banking sewer.  A real stimulus would be when money ends up in the hands of ordinary people and they start spending it.  That's when you would have inflation if you didn't implement other policies to stop it.

----------


## Aurave

> So it's money "borrowed" from the SS trust fund?


It really functions more like part of the actual budget than being "borrowed". If there are surplus payroll taxes they are "invested" into government debt, by an arm of the government. Which really isn't savings, or investment, at all- anymore than moving money from your savings account into your checking account and then spending it on air jordans is somehow an investment on your part, or a debt to yourself.

Sure, if you wanted to really to be stubborn with the idea you could say that you actually have an extra $100 in your savings account because your checking still owes it $100. But in the end the only way that $100 is going to appear in any account is for you to actually work for it...which would be the exact thing you would have to do anyway if that $100 "debt/investment" never existed in the first place. It is just a semantic retardation, a fallacy of composition.

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## TheTexan

Helpful illustration:



source: http://www.federalreserve.gov/datado...mn&pp=Download

(Link may or may not work, if not go to the Data Download Program and select excess reserves)

----------


## heavenlyboy34

> *One thing that can offset the counterfeiting is defaulting on debt.*
> 
> Still it is hard to see inflation up close for me. I'm guessing its been over 8% a year most of my life. I think once some time passes and we look back at the last few years we will be able to see it was alive and well. Actually I have been thinking the last year we had a nice break and had some counterfeiting easing.
> 
> Anyway if you look long term it looks heavy duty. Not like the figures they dish out anyway.


Printing money, by its nature, is a type of default.

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## Paul Or Nothing II

> What's the difference, they own it~


No, they don't! That's just more conspiratorial garbage for the simple-minded!

Government created & sustains the system because government itself is its biggest beneficiaries, although there may be other INCIDENTAL beneficiaries, all the wealth that government rakes in with the prevelant system isn't going to them, it certainly does NOT hand it over to the banks but rather government uses all that wealth on ITSELF!

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## Paul Or Nothing II

> I'm aware that this would "cause losses". But to be honest, in reality those losses already occured at the time they purchased those papers above market value. It's just a matter of accounting at this point, because real wealth doesn't care for financial years.
> 
> But that's not the "problem" I was talking about. Of course it would hurt, but I was more interested in the monetary consequences of a shrinking balance sheet. Because ironically if the balance sheet of the Fed roughly represents the amount of the currency in circulation, then the value of the Dollar would have to *up* , due to it's higher scarcity.


Government not being able to sell those securities at par in itself will be problem when the arrives. When those losses become due, how do you think Treasury is going to pay them? Treasury doesn't even have enough money to pay its "regular" expenditure, which it pays by selling Treasuries! Well, Treasury will simply have to sell "additional" debt to raise enough money to pay off Fed's losses

And then Fed Balance Sheet will essentially go something like this :

(continued from this link - http://www.ronpaulforums.com/showthr...=1#post4405329)

Case 3 : Fed sold MBS at a loss


```
Liabilities                                         Assets
Currency in circulation - 1 trillion                   Treasuries/US debt - 2 trillion
All banks' reserves - 1.5 trillion                      Losses/Treasury A/c - 0.5 trillion
```

Treasury meets the losses by selling additional Treasuries to the market


```
Liabilities                                         Assets
Currency in circulation - 1 trillion                   Treasuries/US debt - 2 trillion
All banks' reserves - 1 trillion                        Losses/Treasury A/c - 0.5 trillion
Profits/Treasury A/c - 0.5 trillion
```

Losses written off


```
Liabilities                                         Assets
Currency in circulation - 1 trillion                   Treasuries/US debt - 2 trillion
All banks' reserves - 1 trillion
```

Fed buys equivalent amount of Treasuries in order to prevent interest on Treasuries from rising & choking US government


```
Liabilities                                         Assets
Currency in circulation - 1 trillion                   Treasuries/US debt - 2.5 trillion
All banks' reserves - 1.5 trillion
```

When the losses become due, Treasury will either give debt-securities worth the amount to Fed or Treasury will simply sell them to Primary Dealers & Fed will immediately buy from them but one way or another, more or less of those losses will "replace" more debt-securities on Fed's Balance Sheet.

So there will be no "shrinking" of Fed's B/S that you are talking about. In fact, the real "problem" is the fact that if Fed can't sell those bad securities at par then it will become even harder for them to shrink their B/S & that will set up stage for higher inflation!




> So would a giant devaluation of the Fed's mortgage backed securities (or even a partial default of the US government) cause the price of the Dollar to go up? That sounds a little bit counter-intuitive.


The more money government needs > the more debt they issue > more of the debt will have to be bought by the central-bank to keep down interest on debt to prevent government-bankruptcy > the more central-bank buys > the more money is created > higher future inflation

----------


## TheTexan

> No, they don't! That's just more conspiratorial garbage for the simple-minded!


Are you seriously trying to tell me that the banks don't pick our candidates nowadays?  "Conspiracy garbage" ok 




> Government created & sustains the system because government itself is its biggest beneficiaries, although there may be other INCIDENTAL beneficiaries, all the wealth that government rakes in with the prevelant system isn't going to them, it certainly does NOT hand it over to the banks but rather government uses all that wealth on ITSELF!


Ya, the banks huge profits over the last decades was surely incidental, I'm sure they had zero influence in making sure that free money chopper was at full capacity.  You're selling to someone who just isn't buying, sorry.

----------


## Paul Or Nothing II

> Once again, without getting into the lowest levels of detail, how is the Federal spending and Federal debt being financed?


Well, at the most fundamental level through taxes & debt........

I'm not sure but I'm assuming you want to know how Fed enables the system & helps out the government.....

If that's indeed the question then -
1) Interest saved - All the interest Treasury "pays" to Fed on Treasuries held by Fed is eventually handed BACK to the Treasury when "Fed's profits" are given back to Treasury. If somebody else had held these Treasuries then money would GO OUT of US government but having Fed there means that much interest essentially goes nowhere & remains with the US Treasury so that it can spend it where it wants.

2) Seigniorage on Coins & Notes -
US Treasury sells coins to Fed at face value to circulate into the economy through 12 regional Fed-banks, as per the communication received from commercial banks about the public-demand for coins; so the difference between cost of production & face value of coins is profit for Treasury.
Just like with coins, as public-demand for notes increases, commercial banks ask for more notes from the 12 regional Fed-banks, these Fed-banks have to buy Treasuries to issue notes into circulation, which they buy from Treasury. Again, the interest saved on these Fed-held Treasuries benefits government.

3) Lower cost of borrowing (interest on Treasuries) - The most significant benefit Fed (all central-banks really) offer to the government is that without a central-bank, government would have to pay much higher interest for borrowing money from the market but with central-banks' virtually unlimited capacity to "create money", they create additional demand for Treasuries & drive down interest on Treasuries/debt, which means government can borrow & spend more than it could have without the existence of a central-bank. Without Fed, US government would probably have bankrupted itself by now but the existence of Fed has enabled it to prolong the inevitable by a few decades at the least.
Without a central-bank, governments' borrowing habits would have to be curtailed significantly or the system would collapse a lot faster so central-banks almost stand to legitimize high government spending & borrowing!

4) Higher taxes - As inflation hits & prices rise, income rise subsequently, so do taxes!




> We need to be a little more specific, but not too detailed! 
> 
> What are the (untrue) myths and conspiracy theories?


There are too many perhaps but a couple would be that "banks get money for free" or that "Fed is private"; it's alright to agitate people with such statements to get them to want to know what Fed & government is doing but that's all should be its utility because as has already been pointed out, neither do banks get "free money" (since they have to repay their loans with interest) nor is Fed run like a truly "private" company (since it's just another arm of the government & hands over its profits to Treasury).




> So it's money "borrowed" from the SS trust fund?


Except they would call it money "invested"! You know because all the wise people in government have chosen to "invest" our money in government-debt as it's the "safest" instrument out there since government will never default on its obligations (it's beside the point that they will just devalue it )

----------


## Paul Or Nothing II

> Are you seriously trying to tell me that the banks don't pick our candidates nowadays?  "Conspiracy garbage" ok 
> 
> 
> 
> Ya, the banks huge profits over the last decades was surely incidental, I'm sure they had zero influence in making sure that free money chopper was at full capacity.  You're selling to someone who just isn't buying, sorry.


Are you in the habit of getting off-track?

The original point of contention was - who's the BIGGEST beneficiary of the system?
You'd said it was the banks & I'd contended that government is the biggest beneficiary of the system & I still stand by that.

Again, banks would be pretty profitable whether borrowing-rates were at 0.XX% while lending-rates being 2-3%, or whether borrowing-rates were at 4-5% while lending-rates being 7-8%, they'd still make good money so long as there was demand for their services, which there usually is in productive societies; but without Fed, government wouldn't be able to borrow at such discounted rates that it does!
Banks are intermediaries, they borrow from one side & lend from the other while they make the spread for providing their services so the rates of interest don't directly affect them but the rates directly affect the ACTUAL borrowers/spenders & lenders/savers.

A libertarian attacks the Fed & the government while a liberal would attack the whole banking industry & anyone that seems to be making a lot of money!

I don't think I could ever convince anyone who relies on conspiracy theories so I don't even try but I just choose to post for those few who might be interested in facts!

----------


## Travlyr

> So I still stand by the statement banks are NOT necessarily the biggest beneficiaries of the system, GOVERNMENT IS!


Are you serious? The Rothchild Family is worth $Billions upon $Billions. 

Sure, the small bankers are not necessarily raking in as much dough as they would like, but they are participating in the theft of America too. Fractional reserve banking is a theft scheme ... plain and simple.

----------


## Brian4Liberty

> Well, at the most fundamental level through taxes & debt........
> 
> I'm not sure but I'm assuming you want to know how Fed enables the system & helps out the government.....


Thanks for the information. A lot of good stuff in there. Yeah, questions about the Fed would would be an extension of the question about how the government finances itself.




> There are too many perhaps but a couple would be that "banks get money for free" or that "Fed is private"; it's alright to agitate people with such statements to get them to want to know what Fed & government is doing but that's all should be its utility because as has already been pointed out, neither do banks get "free money" (since they have to repay their loans with interest) nor is Fed run like a truly "private" company (since it's just another arm of the government & hands over its profits to Treasury).


Interesting. I thought perhaps you guys were talking about the "Fed (or government) running the printing presses" being inaccurate, from a semantics standpoint.

I always look at the Fed banks like (Gas and Electric) Utilities, and the Federal Reserve Board like the PUC. I don't believe that the operations of the banks in the Federal Reserve system are paid for by the Federal government (correct me if I'm wrong), so they must have revenue from some source. So would it suffice to say that they are taking some kind of cut to cover operating expenses (including salaries)?

A related issue is the issuing of public debt through the Treasury. Some small number of people may use Treasury Direct services, but a whole lot of the debt (marketable securities) is issued via primary dealers and market makers. As a middleman taking a cut, they profit just like a brokerage would profit on trades, transactions and M&A. Perhaps that is what you mean by "incidental" in your post below. I would agree that it is a relatively small cut that they take, but I would love to get a small cut of trillions of dollars in transactions.




> Government created & sustains the system because government itself is its biggest beneficiaries, although there may be other INCIDENTAL beneficiaries, all the wealth that government rakes in with the prevelant system isn't going to them, it certainly does NOT hand it over to the banks but rather government uses all that wealth on ITSELF!


Agree, with the caveat that incidental profits are nice when the transactions are in the trillions.

----------


## TheTexan

> Are you in the habit of getting off-track?
> 
> The original point of contention was - who's the BIGGEST beneficiary of the system?
> You'd said it was the banks & I'd contended that government is the biggest beneficiary of the system & I still stand by that.


That's never even been in contention, that the government spends a huge chunk of the new money.  The *wealth transfer* from this arrangement however, is going towards the banks, not towards the government.

The banks hoard and invest their new money, whereas the government spends it on useless worthless consumption $#@! which does not add to their or our wealth whatsoever.  Furthermore, aside from power centers such as the military industrial complex, the smaller companies and people who receive the "benefits" of government spending, their benefits are diluted through government waste and inflation.




> A libertarian attacks the Fed & the government while a liberal would attack the whole banking industry & anyone that seems to be making a lot of money!


I attack the Fed and its massive role in government expansion as much as the next guy.  The difference between you and me, however, is that you're seemingly trying to convince people that the Banker's profits in all of this is a mere afterthought, and their profits are merely incidental, unintentional, exaggerated, and overall insignificant. 

Which is quite frankly, one of the most absurd apologies for the banking industry I've ever heard, and I've heard some very absurd apologies for the banking industry.






> I don't think I could ever convince anyone who relies on conspiracy theories so I don't even try but I just choose to post for those few who might be interested in facts!


Which is exactly what a banker apologist would say.

----------


## Brian4Liberty

> I always look at the Fed banks like (Gas and Electric) Utilities, and the Federal Reserve Board like the PUC. I don't believe that the operations of the banks in the Federal Reserve system are paid for by the Federal government (correct me if I'm wrong), so they must have revenue from some source. So would it suffice to say that they are taking some kind of cut to cover operating expenses (including salaries)?


Now the additional question I have not answered is "what other business are the member banks of the Federal Reserve System involved in"? I don't have the answer off the top of my head. Do these banks solely exist to perform Federal Reserve functions, or is that a side business for them?

----------


## Paul Or Nothing II

> I always look at the Fed banks like (Gas and Electric) Utilities, and the Federal Reserve Board like the PUC. I don't believe that the operations of the banks in the Federal Reserve system are paid for by the Federal government (correct me if I'm wrong), so they must have revenue from some source. So would it suffice to say that they are taking some kind of cut to cover operating expenses (including salaries)?


As I've said, Fed's "profits" come from interest on Treasuries, interest on loans given to banks & so on. They deduct operating expenses from it & a statutory dividend to member-banks who have capital invested in Fed-system; these expenses usually very tiny & rest of it is transferred to Treasury, you can check the record both on Treasury's website as well as that of Fed's.




> A related issue is the issuing of public debt through the Treasury. Some small number of people may use Treasury Direct services, but a whole lot of the debt (marketable securities) is issued via primary dealers and market makers. As a middleman taking a cut, they profit just like a brokerage would profit on trades, transactions and M&A. Perhaps that is what you mean by "incidental" in your post below. I would agree that it is a relatively small cut that they take, but I would love to get a small cut of trillions of dollars in transactions.
> 
> Agree, with the caveat that incidental profits are nice when the transactions are in the trillions.


PDs are market-makers in Treasuries (google market-maker); without them, market for Treasuries would be illiquid & spreads would be massive & fewer individuals/institutions would be interested in buying government-debt in quantities that they do because it simply wouldn't be that economically viable. Market-makers in any market are there to continuously keep buying/selling that instrument, which helps to keep the market liquid, keep spreads low & thereby entice more participants to enter the market.
The amounts that they deal in are big but profits are certainly NOT in "trillions". Just for example, if you buy an oil-contract with 1000 barrels worth about $100,000 & immediately sell it for one tick's profit, you'd have "dealt in" about $200,000 but your profit would be measly $10, this is how market-making works in Treasuries too, PDs buy in huge amounts but profits are nowhere near trillions.

----------


## Paul Or Nothing II

> That's never even been in contention, that the government spends a huge chunk of the new money.  The *wealth transfer* from this arrangement however, is going towards the banks, not towards the government.
> 
> The banks hoard and invest their new money, whereas the government spends it on useless worthless consumption $#@! which does not add to their or our wealth whatsoever.  Furthermore, aside from power centers such as the military industrial complex, the smaller companies and people who receive the "benefits" of government spending, their benefits are diluted through government waste and inflation.


Again, government created the system because government is its biggest beneficiary, they wouldn't be able to borrow so much debt without Fed there. And no, banks get what they get for their services, they don't force anyone to buy anything, it's all voluntary.

You seem simply unable to grasp the fact that banking is by nature a very profitable industry since it's so crucial to capital structure in an economy & therefore they are going to make a lot of money irrespective of the system.




> I attack the Fed and its massive role in government expansion as much as the next guy.  The difference between you and me, however, is that you're seemingly trying to convince people that the Banker's profits in all of this is a mere afterthought, and their profits are merely incidental, unintentional, exaggerated, and overall insignificant. 
> 
> Which is quite frankly, one of the most absurd apologies for the banking industry I've ever heard, and I've heard some very absurd apologies for the banking industry.


The profits are earned for the services they provide, which are completely voluntary.




> Which is exactly what a banker apologist would say.


I'd rather be a banker-apologist for defending a perfectly legitimate & necessary market-industry than being a liberal OWSer who hates anyone that makes a lot of money!

And I'd recommend getting informed on banking & Housing Bubble, 100s of banks across the country failed & nobody bailed them out, some even survived the collapse on their own, while the Fed was trying to re-inflate the economy with low-interest & government pretty much forced banks to make bad loans to poor people of certain races, which turned bad as expected & banks started failing & you think bankers did this to themselves? Clearly, you don't know what you are talking about.

I see no point in prolonging the discussion with you since you're not going to be giving up on your conspiracy theories.

----------


## Brian4Liberty

> As I've said, Fed's "profits" come from interest on Treasuries, interest on loans given to banks & so on. They deduct operating expenses from it & a statutory dividend to member-banks who have capital invested in Fed-system; these expenses usually very tiny & rest of it is transferred to Treasury, you can check the record both on Treasury's website as well as that of Fed's.


Thanks, that answers the question. They take out operating expenses and a dividend before giving the profits back to the Federal Government.




> PDs are market-makers in Treasuries (google market-maker); without them, market for Treasuries would be illiquid & spreads would be massive & fewer individuals/institutions would be interested in buying government-debt in quantities that they do because it simply wouldn't be that economically viable. Market-makers in any market are there to continuously keep buying/selling that instrument, which helps to keep the market liquid, keep spreads low & thereby entice more participants to enter the market.
> The amounts that they deal in are big but profits are certainly NOT in "trillions". Just for example, if you buy an oil-contract with 1000 barrels worth about $100,000 & immediately sell it for one tick's profit, you'd have "dealt in" about $200,000 but your profit would be measly $10, this is how market-making works in Treasuries too, PDs buy in huge amounts but profits are nowhere near trillions.


Yep, in your example the brokerage would make more than me on that transaction.

No one said that the profits were in the trillions. It's the government debt that is in the trillions. 1% of a trillion is $10 billion. I'd take that. How many cuts (transaction and management fees) are taken from a Treasury by the time it is reduced to a STRIP? There are profits to made, especially when dealing with very large numbers.

Edit: I see we are in agreement -




> ... banking is by nature a very profitable industry since it's so crucial to capital structure in an economy & therefore they are going to make a lot of money irrespective of the system...

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## Paul Or Nothing II

> Thanks, that answers the question. They take out operating expenses and a dividend before giving the profits back to the Federal Government.
> 
> 
> 
> Yep, in your example the brokerage would make more than me on that transaction.
> 
> No one said that the profits were in the trillions. It's the government debt that is in the trillions. 1% of a trillion is $10 billion. I'd take that. How many cuts (transaction and management fees) are taken from a Treasury by the time it is reduced to a STRIP? There are profits to made, especially when dealing with very large numbers.
> 
> Edit: I see we are in agreement -


Market-makers in any market don't make 1% per transaction, nowhere close to that.

And if market-makers didn't exist then Treasury-markets would be so illiquid & spreads would be so high that Treasury would get peanuts for issuing debt, compared to the deal they are getting now.

And yes, there are profits to be made but nowhere near as much as is portrayed & not without its associated risks but I don't see how making profits for providing a service is wrong  The point is that system exists to support the government-borrowing & we live in majority-rule system so if the majority could change things if they want to but they clearly don't want to or we'd probably see Ron Paul in charge.

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## Travlyr

> Again, government created the system because government is its biggest beneficiary, they wouldn't be able to borrow so much debt without Fed there. And no, banks get what they get for their services, they don't force anyone to buy anything, it's all voluntary.


Government did not create the system. International bankers created the system. 

Paul Warburg's Crusade to Establish a Central Bank in the United States




> You seem simply unable to grasp the fact that banking is by nature a very profitable industry since it's so crucial to capital structure in an economy & therefore they are going to make a lot of money irrespective of the system.


What do they produce?





> The profits are earned for the services they provide, which are completely voluntary.


Legal tender laws are protected by agents with guns who will hunt people down if they don't pay. How is that voluntary?




> I'd rather be a banker-apologist for defending a perfectly legitimate & necessary market-industry than being a liberal OWSer who hates anyone that makes a lot of money!


They are thieves. You are an apologist for theft. Fractional reserve banking is stealing plain and simple.

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## Travlyr

> I see no point in prolonging the discussion with you since you're not going to be giving up on your conspiracy theories.


Will you prolong the discussion if we don't give up on conspiracy facts?

Even The Federal Reserve Bank of Minneapolis admit, on their own website, it was formed by a conspiracy of international bankers.




> The Jekyll Island Expedition
> One evening in early November 1910, Warburg and a small party of men from New York quietly boarded Sen. Aldrich's private railway car, ostensibly for a trip south to an exclusive hunting club on an island off the coast of Georgia.
> 
> In addition to Warburg and Aldrich, the others, all highly regarded in the New York banking community, were: Frank Vanderlip, president of National City Bank; Harry P. Davison, a J.P. Morgan partner; Benjamin Strong, vice president of Banker's Trust Co.; and A. Piatt Andrew, former secretary of the National Monetary Commission and now assistant secretary of the Treasury. The real purpose of this historic "duck hunt" was to formulate a plan for US banking and currency reform that Aldrich could present to Congress.
> 
> Even Warburg at first questioned the motives of this gathering, not knowing if he was included because the group knew what he preached and was interested in what he had to offer, or if he was to be involved as a conspirator in order to be muzzled. He soon saw that the Jekyll Island conference was pulled together because, as Warburg later wrote, Aldrich was "bewildered at all that he had absorbed abroad and he was faced with the difficult task of writing a highly technical bill while being harassed by the daily grind of his parliamentary duties."

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## TheTexan

> You seem simply unable to grasp the fact that banking is by nature a very profitable industry since it's so crucial to capital structure in an economy & therefore they are going to make a lot of money irrespective of the system.


Banking is even more (a lot more) profitable when you have a best friend with a printing press who's singular purpose in life is to buy your $#@!.  Tends to make things easier.

The Federal Reserve buys things.  Based on $#@!ING BASIC economic principles, that means they bought the product at a price that noone else was able and willing to pay at that time.  It follows then, this also means that they gave the person they bought the product from more money than that person would have received otherwise.  Again, this is economic FACT.  Very $#@!ing basic fact, at that.

Additionally, they buy these products from a select group of people; namely BANKERS.  In VAST quantities.

This is 100% proof that the bankers do profit from this arrangement.  How much is the only question, and there is no way to measure this.  You can speculate based on available evidence (such as the correlation between money printed and profits), but the actual quantity cannot be mathematically proved.




> I see no point in prolonging the discussion with you


Same.  Not sure if you've noticed, but the more money they print, the more of a "very profitable industry" banking becomes.  Considering the basic economic principles outlined above, and the very strong correlation between (money printed) and (banks profit), as far as I'm concerned the onus is on you to show this is just a "coincidence."

Unless you can dispute the laws of supply and demand... then take your bank apologies elsewhere please

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## Steven Douglas

> ...banking is by nature a very profitable industry since it's so crucial to capital structure in an economy & therefore they are going to make a lot of money irrespective of the system.


More to the point, I think: *Capital* is crucial to a capital structure. Banks are only _one possible source_ of capital.  They only become crucial (and therefore more profitable) when they become _the only viable source_.

In reality, banking would be only a fraction as profitable as it has been over the past hundred years if *the other source of capital*, banking's primary natural competition called _privately accumulated capital_ (or savings, the other capital white meat), had not been perpetually eroded - taxed out of existence for the very purpose of providing so-called 'elasticity' of supply, and 'liquidity' to banks. 

Keynes saw people sitting on money -- which really was theirs to sit on, and a natural and necessary component in a free market  -- and just couldn't take it. Short term demand for liquidity trumps all.  So Keynes advocated A Clever Mechanism, by which wealth in the form of wages and currency holdings could be siphoned away and put into circulation anyway.  $#@! the savers - vilify them as hoarders - they be bad anyway, because what were they "contributing".  What value did they serve? (forget Adam Smith's invisible hand when it comes to the self-interested act of savings).  There was nothing whatsoever voluntary about Keynes' Mechanism from the perspective of wage earners and currency holders who were being robbed in the aggregate by invisible thieves with a state-granted Aggregate Thievery Charter. 

As a saver, I have Privately Accumulated Capital to spend, and also to lend if I choose.  I would invariably opt to take different risks than the banks; to spend or lend that capital at different times, to different channels, under different terms and conditions.  But I can't even take the time to accumulate that capital, because by the time I do accumulate some, its scarcity and rental value will have already been thoroughly distorted by dilution - siphoned away by the ever-expanding banking system. 

What Keynes was not so clever about**: He never could devise a means by which those whose wealth was 'temporarily' stolen (borrowed temporarily in an ever-expanding debt cycle, during each transaction for a lender-borrower joyride) could be specifically repaid to those nameless, faceless millions of wage earners and currency holders who actually did foot the bill.  So the value of their capital was stolen and redistributed, not borrowed, because it could never be directly repaid.

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## Brian4Liberty

> And if market-makers didn't exist then Treasury-markets would be so illiquid & spreads would be so high that Treasury would get peanuts for issuing debt, compared to the deal they are getting now.
> ...
> The point is that system exists to support the government-borrowing & we live in majority-rule system so if the majority could change things if they want to but they clearly don't want to or we'd probably see Ron Paul in charge.


Yep, it exists to facilitate government debt and to profit from that. There is no way in the world that the bought politicians and brainwashed masses would ever change that.

As far as the market in Treasuries, I have been a buyer via Treasury Direct in the past. I am no longer a buyer because there is no free, open and competitive market in them anymore. The "market" is manipulated, and the crony banksters are doing their part to distort and destroy that market. They have essentially flooded the market with purchases of the Treasury debt. They are a middle-man in the process when there doesn't need to be a middle-man. And what kind of shenanigans are going on right now to keep that game going and expanding? With QE3, the Fed buys junk debt from Wall St (at what prices, inflated or market?). Is there a back room agreement that they will turn around and put that into Treasuries and enable further debt?




> More to the point, I think: *Capital* is crucial to a capital structure. Banks are only _one possible source_ of capital.  They only become crucial (and therefore more profitable) when they become _the only viable source_.
> 
> In reality, banking would be only a fraction as profitable as it has been over the past hundred years if *the other source of capital*, banking's primary natural competition called _privately accumulated capital_ (or savings, the other capital white meat), had not been perpetually eroded - taxed out of existence for the very purpose of providing so-called 'elasticity' of supply, and 'liquidity' to banks. 
> 
> Keynes saw people sitting on money -- which really was theirs to sit on, and a natural and necessary component in a free market  -- and just couldn't take it. Short term demand for liquidity trumps all.  So Keynes advocated A Clever Mechanism, by which wealth in the form of wages and currency holdings could be siphoned away and put into circulation anyway.  $#@! the savers - vilify them as hoarders - they be bad anyway, because what were they "contributing".  What value did they serve? (forget Adam Smith's invisible hand when it comes to the self-interested act of savings).  There was nothing whatsoever voluntary about Keynes' Mechanism from the perspective of wage earners and currency holders who were being robbed in the aggregate by invisible thieves with a state-granted Aggregate Thievery Charter. 
> 
> As a saver, I have Privately Accumulated Capital to spend, and also to lend if I choose.  I would invariably opt to take different risks than the banks; to spend or lend that capital at different times, to different channels, under different terms and conditions.  But I can't even take the time to accumulate that capital, because by the time I do accumulate some, its scarcity and rental value will have already been thoroughly distorted by dilution - siphoned away by the ever-expanding banking system. 
> 
> What Keynes was not so clever about**: He never could devise a means by which those whose wealth was 'temporarily' stolen (borrowed temporarily in an ever-expanding debt cycle, during each transaction for a lender-borrower joyride) could be specifically repaid to those nameless, faceless millions of wage earners and currency holders who actually did foot the bill.  So the value of their capital was stolen and redistributed, not borrowed, because it could never be directly repaid.


And gone are the days when we "savers" could do our part and _directly_ lend that money to the government. Now we have middlemen taking a cut, and an artificially bloated number of buyers of that debt, driving interest rates down to nothing. The savers, the investors, and the retired people on fixed income suffer, and the banksters and government deficit spenders prosper. Ron Paul would be the first to point that out.

----------


## Paul Or Nothing II

> Yep, it exists to facilitate government debt and to profit from that. There is no way in the world that the bought politicians and brainwashed masses would ever change that.
> 
> As far as the market in Treasuries, I have been a buyer via Treasury Direct in the past. I am no longer a buyer because there is no free, open and competitive market in them anymore. The "market" is manipulated, and the crony banksters are doing their part to distort and destroy that market. They have essentially flooded the market with purchases of the Treasury debt. They are a middle-man in the process when there doesn't need to be a middle-man. And what kind of shenanigans are going on right now to keep that game going and expanding? With QE3, the Fed buys junk debt from Wall St (at what prices, inflated or market?). Is there a back room agreement that they will turn around and put that into Treasuries and enable further debt?


Clearly, you have no grasp of what market-making is or the benefits it confers on the given market by continuously keeping it liquid.............

You must realize that Treasury is far more concerned than you with respect to raking in as much money as they can on debt-issues so they prefer the system of PDs precisely because PDs enable Treasury to maximize its earnings through debt-issues because Treasury knows that it would be raking in much smaller sums if PDs weren't there to continuously buy/sell Treasuries to keep the instruments liquid.




> More to the point, I think: *Capital* is crucial to a capital structure. Banks are only _one possible source_ of capital.  They only become crucial (and therefore more profitable) when they become _the only viable source_.
> 
> In reality, banking would be only a fraction as profitable as it has been over the past hundred years if *the other source of capital*, banking's primary natural competition called _privately accumulated capital_ (or savings, the other capital white meat), had not been perpetually eroded - taxed out of existence for the very purpose of providing so-called 'elasticity' of supply, and 'liquidity' to banks.


"Privately accumulated capital" requires a market-place where buyers & sellers of capital (depositors & borrowers) could come to, banks provide this marketplace so that every depositor that has something to lend doesn't need to go on a search for borrower(s) or every borrower going on a search for a lender(s). Banks aggregate the capital from the depositors & thereby offer averaged out better rates to both depositors as well as borrowers in the process than they would otherwise have gotten.

It's like saying, why buy from local retail shops when we can buy food directly from farmers, of course you can try that but it could be much more costly & time-consuming for most people to do that so they get a better deal by buying from shops who act as intermediaries between producers & consumers whereby both groups get a better deal compared to what they'd have gotten if every producer had to go out looking for consumers & vice versa; banks play a similar role between depositors & borrowers.

One can circumvent banks if one wishes to, but in that case, if one happens to have capital to lend or one wishes to borrow then one's best chance would be to go in the middle of a crowded square & scream whether anybody wishes to lend/borrow! But somehow, I believe going to the bank for the same purpose would be much more cost-efficient than that in many ways & that's why people tend to do that.

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## TheTexan

> Stealing less doesn't make it justifiable, one can't justify stealing someone's pen any more than stealing someone's truck; theft is theft, *it can't be justified*


Agreed 100%.  You should really apply this line of reasoning more consistently, you may come off as less of a bank apologist, just a tip

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## Steven Douglas

> "Privately accumulated capital" requires a market-place where buyers & sellers of capital (depositors & borrowers) could come to, banks provide this marketplace so that every depositor that has something to lend doesn't need to go on a search for borrower(s) or every borrower going on a search for a lender(s). Banks aggregate the capital from the depositors & thereby offer averaged out better rates to both depositors as well as borrowers in the process than they would otherwise have gotten.
> 
> It's like saying, why buy from local retail shops when we can buy food directly from farmers, of course you can try that but it could be much more costly & time-consuming for most people to do that so they get a better deal by buying from shops who act as intermediaries between producers & consumers whereby both groups get a better deal compared to what they'd have gotten if every producer had to go out looking for consumers & vice versa; banks play a similar role between depositors & borrowers.
> 
> One can circumvent banks if one wishes to, but in that case, if one happens to have capital to lend or one wishes to borrow then one's best chance would be to go in the middle of a crowded square & scream whether anybody wishes to lend/borrow! But somehow, I believe going to the bank for the same purpose would be much more cost-efficient than that in many ways & that's why people tend to do that.


I think you're missing my point. I am not anti-banks, anti-lending or anything else of the sort. I am not arguing against the importance of banks (assuming they are solvent, of course).  I am, however, anti-legal tender laws, and anti-counterfeiting, and anti-monopoly where currency "issuance" is concerned. 

With sound currency, and sound monetary policy, especially in the absence of legal tender laws, people really could, and would in many cases, circumvent the banks.  Private capital accumulation in most cases would NOT be for the purpose of renting that money out to others.  That's not what "compete with the banks" in most cases would mean at all.  A sound currency, especially in a growing economy, would naturally decrease the price of credit, and even the demand for it, as the value of the money itself increased.  If banks had no publicly backed "counterfeiter of last resort" it would also decrease the available supply of credit. A Very Good Thing, because malinvestment would all but disappear.  

Saving in a sound currency in a truly free market economy would facilitate a different kind of circumvention of banks most people, as people saved up for their own purchases -- because the time to do so _wasn't artificially stolen from them_.  You really could take your time, work hard, and keep your money in a coffee can or under a mattress; which, incidentally, would be an incidental boon to spenders, because that would affect prices.  It would not affect sellers who were not under artificial credit time constraints, because despite falling prices, the actual _value_ of their goods and services would be virtually unaffected. 

Savers would not automatically be considered "depositors", or lenders, and not everyone would feel a need to even be a lender, or otherwise have to "put their money to work", and all because some elite group of aggregate manipulating pinheads somewhere got together and decided to give currency an artificial shelf life.  The old adage, "work hard and save" could actually mean something again, and would indeed be sound advice. Not in today's monstrosity of a lie.  

I'm not anti-banks, per se. They have a proper place, and should compete. In their proper place, in a truly free market, as they assume full responsibility for all their own risks, with nothing but sound currencies circulating.

----------


## Paul Or Nothing II

> ........


I expect you to remove that fake quote out of common courtesy. I'm appalled that any Ron-Paul-supporter would resort to such deplorable, not to mention childish means to assert oneself!

----------


## Paul Or Nothing II

> I think you're missing my point. I am not anti-banks, anti-lending or anything else of the sort. I am not arguing against the importance of banks (assuming they are solvent, of course).  I am, however, anti-legal tender laws, and anti-counterfeiting, and anti-monopoly where currency "issuance" is concerned. 
> 
> With sound currency, and sound monetary policy, especially in the absence of legal tender laws, people really could, and would in many cases, circumvent the banks.  Private capital accumulation in most cases would NOT be for the purpose of renting that money out to others.  That's not what "compete with the banks" in most cases would mean at all.  A sound currency, especially in a growing economy, would naturally *decrease the price of credit, and even the demand for it*, as the value of the money itself increased.  If banks had no publicly backed "counterfeiter of last resort" it would also decrease the available supply of credit. A Very Good Thing, because malinvestment would all but disappear.  
> 
> Saving in a sound currency in a truly free market economy would facilitate a different kind of circumvention of banks most people, as people saved up for their own purchases -- because the time to do so _wasn't artificially stolen from them_.  You really could take your time, work hard, and keep your money in a coffee can or under a mattress; which, incidentally, would be an incidental boon to spenders, because that would affect prices.  It would not affect sellers who were not under artificial credit time constraints, because despite falling prices, the actual _value_ of their goods and services would be virtually unaffected. 
> 
> Savers would not automatically be considered "depositors", or lenders, and not everyone would feel a need to even be a lender, or otherwise have to "put their money to work", and all because some elite group of aggregate manipulating pinheads somewhere got together and decided to give currency an artificial shelf life.  The old adage, "work hard and save" could actually mean something again, and would indeed be sound advice. Not in today's monstrosity of a lie.  
> 
> I'm not anti-banks, per se. They have a proper place, and should compete. In their proper place, in a truly free market, as they assume full responsibility for all their own risks, with nothing but sound currencies circulating.


You expect people to save their money under the mattress under an open standard in money but I sense that irrespective of the standard, people will always try to maximize their earnings so if people have the opportunity to deposit & earn interest then they'll surely deposit with banks, not to mention they'll have security-concerns in mind too as banks will provide better security than keeping it under the mattress............but there's no point in arguing about that at this stage as facts will play themselves out eventually, as & when currencies are allowed to be freely chosen.

I'd just like to point out that falling price & falling demand is a fictional Keynesian paradigm, with which they presume _"deflationary spiral"_ & thereby promote inflation; in the real world though, falling prices increase demand & increasing prices decrease demand & therefore, limited supply of credit would mean higher REAL (as opposed to "nominal") interest-rates.

----------


## TheTexan

> I expect you to remove that fake quote out of common courtesy. I'm appalled that any Ron-Paul-supporter would resort to such deplorable, not to mention childish means to assert oneself!


That's a direct quote of yours.  Click on the arrow.  YOU SAID THAT.

----------


## Steven Douglas

> You expect people to save their money under the mattress under an open standard in money...


Under an ostensibly sound currency (no central control or manipulation), in a regime where banks and lending institutions are held accountable, and are not subject to public backing or bailouts, there is always a concern about bank solvency, as there rightly was in the past, given the real risks involved.  It's not that I expect most _would_ store their money in mattresses, coffee cans, or home safes; only that they _could_, and that many would (as many did in the past), secure in the knowledge that the value isn't being centrally manipulated and deliberately eroded.  




> I'd just like to point out that falling price & falling demand is a fictional Keynesian paradigm, with which they presume _"deflationary spiral"_ & thereby promote inflation; in the real world though, falling prices increase demand & increasing prices decrease demand & therefore, limited supply of credit would mean higher REAL (as opposed to "nominal") interest-rates.


I agree, on all points. Even Keynes himself knew that under the worst case scenario the market would equilibrate long term. With inflation, on the other hand, there is no ceiling, and a hyper-inflationary spiral is no myth, as we have too many real world examples of that nightmare scenario playing out.

----------


## Brian4Liberty

> Clearly, you have no grasp of what market-making is or the benefits it confers on the given market by continuously keeping it liquid.............
> 
> You must realize that Treasury is far more concerned than you with respect to raking in as much money as they can on debt-issues so they prefer the system of PDs precisely because PDs enable Treasury to maximize its earnings through debt-issues because Treasury knows that it would be raking in much smaller sums if PDs weren't there to continuously buy/sell Treasuries to keep the instruments liquid.


Market-making is a separate subject. (And I would not go as far as to call it "doing God's work", like Lloyd Blankfein might).

Granted, it is nice to have a place to sell a Treasury that I have purchased before maturity. An exchange or market maker works nicely for that. In the case where a person buys direct from the government, and holds to maturity, there is no need for a market maker or an exchange. That is how a lot of government debt worked when ordinary people bought US Savings bonds (and we infamously "owed it to ourselves"). And if they wanted to sell them early, they could turn them in at a value less than full maturity value.

I have a problem with the fact that there is no longer competition in the Treasury auction process. No buyers? The interest rate must go up (price comes down). But no, instead the government will buy it all! It would be nice to run a business like that. "This widget costs $10,000. Too expensive and nobody wants to buy? Gee, I'll buy it from myself. Let me do the appropriate journal entries and wow, look at the money I just made!"

----------


## Brian4Liberty

> Market-makers in any market don't make 1% per transaction, nowhere close to that.
> 
> And if market-makers didn't exist then Treasury-markets would be so illiquid & spreads would be so high that Treasury would get peanuts for issuing debt, compared to the deal they are getting now.
> 
> And yes, there are profits to be made but nowhere near as much as is portrayed & not without its associated risks but I don't see how making profits for providing a service is wrong  The point is that system exists to support the government-borrowing & we live in majority-rule system so if the majority could change things if they want to but they clearly don't want to or we'd probably see Ron Paul in charge.


And in today's news, we see that Goldman Sachs certainly believes that there is real money to be made. So much money in fact, that they will risk bribing politicians to get the business:




> Goldman to pay $12 million to settle "pay-to-play" probe
> 
> A former vice president in Goldman's Boston office, Neil Morrison, worked on the campaign of Timothy Cahill around the same time that he was also* soliciting underwriting business* from the Massachusetts treasurer's office, the Securities and Exchange Commission said.
> 
> http://news.yahoo.com/goldman-pay-12...9--sector.html

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## Paul Or Nothing II

> That's a direct quote of yours.  Click on the arrow.  YOU SAID THAT.


It's a misleading quote because it's totally irrelevant to the conversation at hand & it was said in a completely different context - it was said with respect to the fact that any tax is theft - BUT PDs don't have power to tax, they don't steal from anyone, they don't create money, Fed/government creates money & Fed/government would be doing so whether PDs existed or not. PDs simply get what they get as an income for their services, & the last time I checked, earning something for providing a service in VOLUNTARY way is NOT considered stealing!
Besides, PDs DON'T always make profits, they make losses too & there are real risk to being a PD as well & if you do some research then you'll find that some PDs made losses & went out of business because there are no guaranteed profits as some of you seem to assume; most of them end up in profits because they are really good at trading.

----------


## Paul Or Nothing II

> Under an ostensibly sound currency (no central control or manipulation), in a regime where banks and lending institutions are held accountable, and are not subject to public backing or bailouts, there is always a concern about bank solvency, as there rightly was in the past, given the real risks involved.  It's not that I expect most _would_ store their money in mattresses, coffee cans, or home safes; only that they _could_, and that many would (as many did in the past), secure in the knowledge that the value isn't being centrally manipulated and deliberately eroded.  
> 
> I agree, on all points. Even Keynes himself knew that under the worst case scenario the market would equilibrate long term. With inflation, on the other hand, there is no ceiling, and a hyper-inflationary spiral is no myth, as we have too many real world examples of that nightmare scenario playing out.


Yes, people "could" save under the mattress but most wouldn't because it would be less rewarding. Of course, people will always hold some cash on hand irrespective of the system, just to meet their immediate expenditure BUT as I've said, supply of money/credit would be quite limited if there was a free market in money, & as we know - lower supply = higher prices - meaning, the price of borrowing money/credit [aka (real) interest] would be higher, meaning there would be greater incentive for people to save & deposit/lend, so if anything, banks would be in business a lot more.

----------


## Paul Or Nothing II

> Market-making is a separate subject. (And I would not go as far as to call it "doing God's work", like Lloyd Blankfein might).
> 
> Granted, it is nice to have a place to sell a Treasury that I have purchased before maturity. An exchange or market maker works nicely for that. In the case where a person buys direct from the government, and holds to maturity, there is no need for a market maker or an exchange. That is how a lot of government debt worked when ordinary people bought US Savings bonds (and we infamously "owed it to ourselves"). And if they wanted to sell them early, they could turn them in at a value less than full maturity value.
> 
> I have a problem with the fact that there is no longer competition in the Treasury auction process. No buyers? The interest rate must go up (price comes down). But no, instead the government will buy it all! It would be nice to run a business like that. "This widget costs $10,000. Too expensive and nobody wants to buy? Gee, I'll buy it from myself. Let me do the appropriate journal entries and wow, look at the money I just made!"


It's not that there's no competition, there are dozens of PDs & each one dealing in its own self-interest & buying/selling accordingly so of course, there's competition. Now, I understand that you want the process to be open to everyone, the fact is that the system of PDs enables Treasury to rake in more money through every debt-issue & that's why it exists.

Just like market-makers on exchanges usually have agreements to be ready to buy/sell certain amounts of the given instrument(s), PDs would also have agreements with the government to buy/sell certain amounts of Treasuries, as deemed necessary by the government to keep the market liquid & spreads low & for this benefit government receives, the government is willing to let PDs have the privilege to be the first ones to bid on newer issues.

As I've said, the assumption that PDs are automatically profitable is fallacious as some PDs did end up making losses & going out of business, it's like any other business, yes, there are profits to be made (no guarantees though) but there are risks as well since they have to fulfill agreements whether they are making profits or losses.

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## Steven Douglas

> Yes, people "could" save under the mattress but most wouldn't because it would be less rewarding.


Less rewarding as opposed to more punishing and destructive, as we have now with the Keynesian theft nightmare regime we're all forced to live under. 




> Of course, people will always hold some cash on hand irrespective of the system, just to meet their immediate expenditure...


Having "cash on hand" is not the only reason people would hold "cash", any more than I hold PM's, as for many others it would have nothing whatsoever to do with 'immediate' expenditures, and everything to do with accumulation of capital _over time that is not stolen from them_.  

As of now, the value currency holdings, regardless where they are held, is so much sand in an artificial hourglass. If there was a free market in money (no legal tender laws, and banks not propped up and protected in their inherent insolvency by a Mommy counterfeiter), you would see banks exposed to much more risk, with many actually failing.  That would result, as it has so many times in the past, in A Very Healthy Distrust for banks that would return to the market. That is A Very Good Thing Indeed, because ordinary individuals, and not just "the people", would realize that they are also exposed to the very real risks that go along with the possibilities of those greater rewards you mentioned of being a depositor/lender to lending institutions.  




> BUT as I've said, supply of money/credit would be quite limited if there was a free market in money...


The supply of debt/money from banks, yes. 




> ..., & as we know - lower supply = higher prices...


Lower supply equates to higher prices only if demand (the willingness _and ability_ to buy at a given price) remains constant.  Both supply and demand are contingent on both the *ability and willingness* on the parts of *buyers and sellers* at a given price.  

Right now, even with negative interest rates, actual _economic supply_ is very low for money from banks to average individuals and firms, despite high demand on the side of those buyers who are both willing and able.  That same supply, however, is very high to select entities in the market.  

Banks are able to supply but not willing to lend to anyone without a superior credit rating or superior equity in collateral as a guarantee.  Large non-financial firms that have those superior credit ratings (Microsoft, Apple, Cisco, etc.,) are taking advantage of this by taking on massive amounts of low interest debt with cash balances that are hoarded without investing.  They can and do hoard cash because it gives them greater solvency - greater staying power - while feeling that they are in little danger of losing value in the process at those interest rates. 




> - meaning, the price of borrowing money/credit [aka (real) interest] would be higher, meaning there would be greater incentive for people to save & deposit/lend, so if anything, banks would be in business a lot more.


You are saying, in essence, that banks will be willing to lend less (lower supply) at a greater price. Lower supply at a greater price, however can be a zero sum game. You made no mention of actual demand -- the other necessary component for a market price to even be established, which is never constant. 

In a free currency market, interest rates are established dynamically by both supply and demand.  Your assumption is that most people would lend their currency holdings (the ONLY supply) to banks. However, _interest rates in a free currency market cannot rise without increased demand._  If those interest rates, which are nothing but asking prices on the parts of various lenders, are set too high, demand (willingness and ability to borrow at those rates) will fall, and along with that, the price of debt from banks.  

It sounds like you think I am claiming that banks would somehow dry up and blow away under a sound currency in a free market in currency.  That is not my claim, nor is it the point I am making at all.  My point is that lending institutions would be forced to actually compete for money to lend from its _only real sources_, and not just to satisfy an arbitrary reserve balance sheet requirement set by some central controller.  I don't care how much less or more economic activity banks would have, or how many people would prefer to engage in lending to them, or what _the price of debt_ would be from them. 

My only point is that the practice of stashing money into safes, mattresses and coffee cans would increase, because there is _no risk of losing value in the process_ (no forced investments on the absolute knowledge that the perpetually debased currency will LOSE value), while the incentive to lend to lending institutions would involve real risks of losses that a portion of the population would not be willing to take. THAT is what would cause the supply of money available from lending institutions to decrease. But that does NOT mean that supply of money _to the economy_ dries up in the aggregate, because capital is still being accumulated privately. That capital is spent over time, given that there is no reason whatsoever to hoard money indefinitely, as that would serve no purpose.

----------


## TheTexan

> It's a misleading quote because it's totally irrelevant to the conversation at hand & it was said in a completely different context - it was said with respect to the fact that any tax is theft - BUT PDs don't have power to tax, they don't steal from anyone, they don't create money, Fed/government creates money & Fed/government would be doing so whether PDs existed or not. PDs simply get what they get as an income for their services, & the last time I checked, earning something for providing a service in VOLUNTARY way is NOT considered stealing!
> Besides, PDs DON'T always make profits, they make losses too & there are real risk to being a PD as well & if you do some research then you'll find that some PDs made losses & went out of business because there are no guaranteed profits as some of you seem to assume; most of them end up in profits because they are really good at trading.


If you accept that the Federal Reserve is stealing from the American People and this is a crime against all of us (and if you don't agree with that you're in the wrong forum), then, yes, the PD's are dealing in stolen money and are thus criminals:




> *A fence is an individual who knowingly buys stolen property for later resale, sometimes in a legitimate market.* The fence thus acts as a middleman between thieves and the eventual buyers of stolen goods who may not be aware that the goods are stolen. As a verb, the word describes the behavior of the thief in the transaction: The burglar fenced the stolen radio. This sense of the term came from thieves' slang, first attested c. 1700, from notion of such transactions taking place under defence of secrecy.[1]
> The fence is able to make a profit with stolen merchandise because he is able to pay thieves a very low price for stolen goods. *The fence then disguises the stolen nature of the goods, if possible, so that he or she can sell them closer to the usual wholesale price*.





> Fencing is illegal in the US

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## Danan

> If you accept that the Federal Reserve is stealing from the American People and this is a crime against all of us (and if you don't agree with that you're in the wrong forum), then, yes, the PD's are dealing in stolen money and are thus criminals:


Yeah but if that's the case then everybody working for the government is dealing with stolen goods. Every road construction company, every public teacher, every cleaning worker and janitor at public buildings, everybody collecting Social Security and even Ron Paul.

And you might even argue that technically this is indeed the case. However I believe the system is too screwed up at this point to single out some groups and argue from a moral point of view. I'd be fine with every PD who is not advocating for the FED's existence and who does not try to justify what he does as being the only way to go.

A trader is looking for profits in the market place, be it because of arbitrage or better estimation of future values. That's his job and that's what he does. He doesn't differentiate between "good money" and "bad money". In a truly free market, his service would always be valuable to society or he would go out of business. And besides government bonds or without government in general, financial speculation does provide many benefits, like lower price volatility, lower transaction costs, risk-hedging, etc.

The individual trader usually doesn't care where the money comes from. It's not his job to think about that. His job is to find possible trade profits, which is - again - beneficial in a free market. And most likely he has never in his whole life thought about the Federal Reserve System as the root of all evil, or of new bonds as stealing from the public, just like most people in economics departments don't. It's not reasonable to assume that traders think entirely different about the issue than the economic mainstream. Just like the average teacher doesn't view his paycheck as financed with stolen goods.

The casual root of this problem is the government, coercively facilitating this scheme around the Fed. The solution is to let the people know why central banking has negative effects on their lifes. Not to blame PDs. That won't do any good. Get rid of the Fed and PDs go with it.

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## Paul Or Nothing II

> Yeah but if that's the case then everybody working for the government is dealing with stolen goods. Every road construction company, every public teacher, every cleaning worker and janitor at public buildings, everybody collecting Social Security and even Ron Paul.
> 
> And you might even argue that technically this is indeed the case. However I believe the system is too screwed up at this point to single out some groups and argue from a moral point of view. I'd be fine with every PD who is not advocating for the FED's existence and who does not try to justify what he does as being the only way to go.
> 
> A trader is looking for profits in the market place, be it because of arbitrage or better estimation of future values. That's his job and that's what he does. He doesn't differentiate between "good money" and "bad money". In a truly free market, his service would always be valuable to society or he would go out of business. And besides government bonds or without government in general, financial speculation does provide many benefits, like lower price volatility, lower transaction costs, risk-hedging, etc.
> 
> The individual trader usually doesn't care where the money comes from. It's not his job to think about that. His job is to find possible trade profits, which is - again - beneficial in a free market. And most likely he has never in his whole life thought about the Federal Reserve System as the root of all evil, or of new bonds as stealing from the public, just like most people in economics departments don't. It's not reasonable to assume that traders think entirely different about the issue than the economic mainstream. Just like the average teacher doesn't view his paycheck as financed with stolen goods.
> 
> The casual root of this problem is the government, coercively facilitating this scheme around the Fed. The solution is to let the people know why central banking has negative effects on their lifes. Not to blame PDs. That won't do any good. Get rid of the Fed and PDs go with it.


+1

Great post!

Hit all the right points!

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## TheTexan

It's theft... but it's ok, because a) he doesn't know its theft and b) everybody is doing it.  Great argument!

If you think these bankers don't center their portfolios around the profits they get from the Fed... think again.  They know *exactly* what they are doing.

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## Paul Or Nothing II

> However, _interest rates in a free currency market cannot rise without increased demand._


There's always demand for money & credit......please don't go Bernanke on me , who says that stuff like _"there's low demand"_, no, there's always demand, the question is whether the supply is high enough to offer low enough prices so that buyers can buy more!
Accordingly, as the supply of credit would be quite limited if there was a free market in money, price of credit (real interest) would naturally be pretty high & that would provide more incentive for the savers to deposit with banks.




> My only point is that the practice of stashing money into safes, mattresses and coffee cans would increase, because there is _no risk of losing value in the process_ (no forced investments on the absolute knowledge that the perpetually debased currency will LOSE value), while the incentive to lend to lending institutions would involve real risks of losses that a portion of the population would not be willing to take. THAT is what would cause the supply of money available from lending institutions to decrease. But that does NOT mean that supply of money _to the economy_ dries up in the aggregate, because capital is still being accumulated privately. That capital is spent over time, given that there is no reason whatsoever to hoard money indefinitely, as that would serve no purpose.


You somehow seem to assume that people invest because we live in an inflationary system, when in fact, people invest because they want a return on their capital & people will always prefer to earn a return on their capital whether they live in inflationary system or a deflationary one.

The thing is that an inflationary system benefits borrowers & spenders so it doesn't incentivize savings much at all (whether under the mattress or in the banks), while a deflationary system benefits savers & lenders so of course, there's a higher incentive (higher real interest) to save & lend.

As for the risks of bank-failures go, in a truly free market, most of the banks would naturally be very sound because unsound ones would go out of business pretty quickly & of course, most people would definitely find it palatable to earn a high real interest on their capital (savings leftover after considering their regular expenditure) by depositting with a sound bank than stashing it under a mattress.

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## Paul Or Nothing II

> It's theft... but it's ok, because a) he doesn't know its theft and b) everybody is doing it.  Great argument!
> 
> If you think these bankers don't center their portfolios around the profits they get from the Fed... think again.  They know *exactly* what they are doing.


It's not theft because PDs don't create money, they don't exert coercion on anyone, they are providing a VOLUNTARY service & whatever they earn is for the SERVICE they are providing.

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## Steven Douglas

> There's always demand for money & credit......please don't go Bernanke on me , who says that stuff like _"there's low demand"_, no, there's always demand, the question is whether the supply is high enough to offer low enough prices so that buyers can buy more!


Actually, I wouldn't argue with Bernanke, because he reasons everything strictly from a Keynesian macro-economics framework.  That $#@!ing idiot doesn't account for the fact that demand, on a micro-economics level, is based on willingness AND ABILITY.  

There is a TON of "demand" for money, if we only look at _willingness_ to borrow.  But that is not the economics definition of demand. That's a $#@! in one hand, want in the other scenario.  Without the _ability_ to borrow, there is no "demand", regardless how much "desire" or "need" (often mistaken for "demand") there is in the economy, and without regard to how many Wimpies would gladly pay you Tuesday for a hamburger today.  

Where it gets even more complicated is WHO is responsible for determining the _ability_ to borrow (even in a free and sound money market economy). _All of that so-called demand is ultimately affected and determined on the supply side_.  Lenders are not like stores, where anybody with the ability and willingness to pay gets served without discrimination.  You might decide your _willingness_, but it is the banks that will ultimately decide your ability, since all you are promising is future payments.  So right from the git-go we have a supply and demand component that is very different from other goods and services, since banks are the ONLY "supply" of money outside the government in our current regime, and they have a direct affect on what we count as "demand".  




> Accordingly, as the supply of credit would be quite limited if there was a free market in money, price of credit (real interest) would naturally be pretty high & that would provide more incentive for the savers to deposit with banks.


Sure, but once again you didn't address the dynamic of a truly free market in money; namely, how do banks and ordinary people behave in the complete absence of a _counterfeiter of first resort_. And as long as fractional reserve lending is practiced in the way that it has in the past, credit cycles are going to continue, as banks are going to continue to operate as inherently insolvent, with the riskier behaving banks going belly-up (and savings of lender/savers/depositors gone with them).  We would still have bank runs, as we did in the past, and therefore all the incentive in the world for many (certainly not all) savers to bypass banks altogether, and avoid them wherever possible.  That IS how it happened in the past.  They may not be earning money by lending it out to others, but most importantly, neither are they risking any, or risking losing wealth in the process, as they really do have a "store" of wealth that is not LOSING, and really does buy them time to accumulate more.  

The only thing Keynes caused to be absolutely cemented in place was a deliberate guarantee (not risk), of exponential loss to currency holders, as economic rents are charged to the currency itself by the banking system, as a direct consequence of artificially inflating its supply. 




> You somehow seem to assume that people invest because we live in an inflationary system, when in fact, people invest because they want a return on their capital & people will always prefer to earn a return on their capital whether they live in inflationary system or a deflationary one.


I assume nothing except that currency holdings are like sand in an hourglass in an inflationary system.  You own the top part of the glass only, while the counterfeiter owns the bottom part of the hourglass. And it NEVER flows upward.  Your so-called money is leaking out through an invisible hole over time, at all times regardless where your currency is physically.  

Labor, because its quantity and value tend to be finite, seeks, on the whole, to simply survive inflation. Capital seeks, and is more poised, to thrive in it. But all currency holders, laborers and capitalists, pay the price of having the value of their holdings siphoned/taxed in the process.  The fact that you can earn wages or profits that might outstrip inflation is wholly beside that one salient point, which applies to everyone involved. 




> The thing is that an inflationary system benefits borrowers...


The largest benefit to borrowers (outside looser credit and malinvestment opportunities during booms, when risks are socialized), is the TIME advantage given to borrowers, literally at the expense of currency holders.  The monetary exchange value advantage is eaten up by interest to the banks, leaving the borrowers only with the advantage of TIME to make up the difference. 

In other words, save all you want, the banks are lending out its ever-eroding exchange value anyway.  




> The thing is that an inflationary system benefits...spenders...


That is where I disagree in the absolute, unless you are making a narrow reference to "spenders" as meaning only those borrowers who are spending.  Actual savers (not lenders or their borrowing spenders), are the spender's best friend in a free market economy with sound money, because their savings increases the relative scarcity of the money that the actual spenders are spending.  The 'borrowing spenders' in an inflationary regime, on the other hand, are the proverbial turds in the punchbowl, as they are in direct competition with other spenders, as they drive up/bid up the prices of goods and services.    




> ...so [an inflationary system] doesn't incentivize savings at all (whether under the mattress or in the banks)


Worse than that. Not only does an inflationary fiat system not 'incentivize' savings, it actually punishes it. Taxes it away invisibly.  It's not an otherwise neutral proposition. That really is an economic treadmill that all who are dependent on wages and currency holdings face.  




> ...while a deflationary system benefits savers & lenders so of course, there's a higher incentive (higher real interest) to save & lend.


A deflationary system is only on its way to defying Keynesian-spawned logic as it becomes simply A Stable And Sustainable System in the long run. One that is self-stimulated, and requires no extra centrally-manipulated jolt.  That is a case where you might have a lot of people willing, and even able to lend, but not always through the banks. And the risks of lending, which are no longer socialized, are much, much greater. 




> As for the risks of bank-failures go, in a truly free market, most of the banks would naturally be very sound because unsound ones would go out of business pretty quickly...


Failures would be in a domino-effect, if fractional reserve lending was still involved, due to the risk-pooling nature of the system itself.   Thus, the boom-bust cycles would continue, with people freely lending to banks whilst they forget the lessons of the past, only to have it all end in periodic bank runs, as everyone develops, once again, a healthy distrust for all lending institutions.   




> ...& of course, most people would definitely find it palatable to earn a high real interest on their capital (savings leftover after considering their regular expenditure) by depositting with a sound bank than stashing it under a mattress.


I think that's a circular argument, one that is put into a larger perspective of the business/credit cycle.   The people in the roaring 20's had a decidedly different view of what was palatable with regard to banks (including what a "sound bank" means) than those very same people a mere decade later.

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## Paul Or Nothing II

> Where it gets even more complicated is WHO is responsible for determining the _ability_ to borrow (even in a free and sound money market economy). _All of that so-called demand is ultimately affected and determined on the supply side_.  Lenders are not like stores, where anybody with the ability and willingness to pay gets served without discrimination.  You might decide your _willingness_, but it is the banks that will ultimately decide your ability, since all you are promising is future payments.  So right from the git-go we have a supply and demand component that is very different from other goods and services, since banks are the ONLY "supply" of money outside the government in our current regime, and they have a direct affect on what we count as "demand".


Of course, banks are going to "discriminate" as to whom they lend because they are accepting the risk of default & thereby ensure principal + interest to the depositors; it offers an additional layer of safety for the depositors, as opposed to depositors going around looking for borrowers & directly taking on the risk of default.
Not to mention, even if depositors were to lend directly to borrowers, they'll still be "discriminatory" in their practices as to whom they lend, they are not going to lend to every Tom, Dick & Harry that wants a loan! When depositors deposit with banks, this "screening process" for eligible borrowers is simply "outsourced" to the banks because they are the ones taking the direct risk in that case.

Anyways, the reason I pointed out that _"there's always demand for money"_ is to point out that therefore, it's the supply that dictates the returns & incentives for saving/lending.
So, in an inflationary environment, where there's greater supply of credit & lower or negative REAL interest, it disincentivizes savers/depositors from depositting with banks (& look for non-bank investments) while a deflationary environment, where there's limited supply of credit & higher REAL interest, it incentivizes more savers/depositors to deposit more with banks.




> Sure, but once again you didn't address the dynamic of a truly free market in money; namely, how do banks and ordinary people behave in the complete absence of a _counterfeiter of first resort_. And as long as fractional reserve lending is practiced in the way that it has in the past, credit cycles are going to continue, as banks are going to continue to operate as inherently insolvent, with the riskier behaving banks going belly-up (and savings of lender/savers/depositors gone with them).  We would still have bank runs, as we did in the past, and therefore all the incentive in the world for many (certainly not all) savers to bypass banks altogether, and avoid them wherever possible.  That IS how it happened in the past.  They may not be earning money by lending it out to others, but most importantly, neither are they risking any, or risking losing wealth in the process, as they really do have a "store" of wealth that is not LOSING, and really does buy them time to accumulate more.


Sorry but the premise is false because the system that existed in the past was NOT a free market so one can't make conclusions about free-market-banking by citing a system which wasn't a free market at all.

There's a big difference between FRB under the system that existed in the past & FRB under a free market.

FRB as it existed/exists, PRETENDS that banks can redeem all the demand-deposits at any given time even though they can't while FRB under a free market would openly tell its demand-depositors that the bank mayn't be able to redeem demand-deposits at times & that it would be _"subject to availability of funds"_, may be banks will offer "penalty-interest" or anything else to compensate for the fact that they weren't able to redeem the deposits on demand, free-banking Austrians have talked about this already with historical examples.

Secondly, under a free market, there's no "corporate veil", which means that owners of the bank are PERSONALLY liable for all the obligations of the banks, which means that if a bank fails then even the PERSONAL ASSETS of its owners will be seized to pay off the debtors & depositors. This will mean that banks will be more careful & minimize risks because excessive risk could easily throw its owners out onto the streets.

Given these conditions, a free market will produce a very strong banking system, where there will be numerous sound banks where depositors would prefer to put their moneys rather than under a mattress!
Less sound banks may have to offer higher interest to entice depositors so it will be upto each depositor & his/her risk-appetite as to which way he/she wants to go but the point is that just because people are living in a deflationary environment does NOT mean that they will stop seeking a return on their capital.




> Worse than that. Not only does an inflationary fiat system not 'incentivize' savings, it actually punishes it. Taxes it away invisibly.  It's not an otherwise neutral proposition. That really is an economic treadmill that all who are dependent on wages and currency holdings face.


Exactly!

That's why I'm contending the belief that the current inflationary system somehow encourages people to save/invest with banks........it does NOT! In fact, an inflationary, high-credit, lower/negative-interest environment gets savers to look for other investment options with better returns on their capital (stock-market, commodities, etc) while a deflationary, limited-credit, high-interest environment gets savers to invest/deposit more with banks.

Most people neither understand nor react directly to macro-economic factors, they neither interested nor capable of understanding them, so they merely react to prices & profits. Hence, more of them will look to invest in stock-market, commodities & such in an inflationary environment because their prices rise with inflation while bank-interest is often driven below par due to excess credit introduced by central-banks, but in a deflationary environment, stock-market, commodities & such won't rise as fast as there's less monetary inflation but (real) bank-interest will be pretty high because money/credit is limited & therefore that will incentivize more savers to invest/deposit with banks.

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## TheTexan

> It's not theft because PDs don't create money, they don't exert coercion on anyone, they are providing a VOLUNTARY service & whatever they earn is for the SERVICE they are providing.


Spending the Fed's printed money is a service?  Give me a $#@!ing break

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## Paul Or Nothing II

> Spending the Fed's printed money is a service?  Give me a $#@!ing break


PDs buy Treasuries from US Treasury by PAYING them so of course, they must be PAID for it when Fed buys the same from PDs. There's nothing evil about PDs getting paid for selling an asset, which they'd previously bought with their money.

The more you post, the more you seem like a typical liberal - _"oh, they are making lots of money & I can't seem to understand why, so it must be evil!"_

You don't seem to grasp that voluntary action & coercion are the issues at the heart of libertarianism, & accordingly, anybody who is offering a voluntary service & is NOT exerting coercion upon anyone else isn't in any way violating libertarian ethics.

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## Truth-Bringer

> If all this money-printing had occurred while the economy was already doing well, it would have caused a lot more inflation, maybe hyperinflation. But the deflationary forces are so powerful that there's a tug-of-war between inflation and deflation. Inflation is winning, however, and will definitely win in the end now that we have open-ended QE.
> 
> That's way overly-simplistic, but I think it's about right.


Agreed that the deflationary forces are more powerful, however inflation may not win in the end.  Why?  Because the government might return to a gold standard at some point - which would end up being a cheat because they would not allow the true full value of gold to be realized.  They could default on the national debt at the same time.  Both those moves would be highly deflationary.  So that's something to watch out for.  Still better to own gold/silver/platinum in that situation as well because the value of just about everything else would plummet - stocks/bonds/real estate/etc.

We are in a massive bubble which will either end in a deflationary collapse, if there is a return to some sort of precious metals standard, or a hyperinflationary collapse.

The government cannot raise interest rates to save the dollar this time as they did in the late seventies/early eighties.  Why?  Because at rates high enough to do that, the interest payments alone would absorb 100% of all tax revenue.  We are in the end game.

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## TheTexan

> PDs buy Treasuries from US Treasury by PAYING them so of course, they must be PAID for it when Fed buys the same from PDs. There's nothing evil about PDs getting paid for selling an asset, which they'd previously bought with their money.
> 
> The more you post, the more you seem like a typical liberal - _"oh, they are making lots of money & I can't seem to understand why, so it must be evil!"_
> 
> You don't seem to grasp that voluntary action & coercion are the issues at the heart of libertarianism, & accordingly, anybody who is offering a voluntary service & is NOT exerting coercion upon anyone else isn't in any way violating libertarian ethics.


You can throw that "voluntary and non-coercion" bull$#@! out the door, banker apologist.  These bankers created the Fed, and pay big bucks to maintain the Fed, through the vehicle of politics which is by definition violent and coercive.

And I know exactly how they are making lots of money.  I've already proven to you through basic economic logic that simply by doing business with the Fed they will make more money than they would otherwise.  And it just so happens that the Fed has a counterfeit printing press that deals in the trillions... so I wonder how much of a "service" it is to make profits by selling your $#@! that noone else wants to buy to the Fed.

That's a great $#@!ing "service", there, Paul or Nothing II.  You continue to prove yourself as a banker apologist who either grossly misunderstands the issues and theft at hand, or are lying to cover it up.

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## Paul Or Nothing II

> You can throw that "voluntary and non-coercion" bull$#@! out the door


That is all one needs to say to show that they don't really believe in principles of liberty & voluntaryism, enough said......

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## TheTexan

> That is all one needs to say to show that they don't really believe in principles of liberty & voluntaryism, enough said......


Heh you clearly don't know me very well

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## Steven Douglas

> Of course, banks are going to "discriminate" as to whom they lend because they are accepting the risk of default & thereby ensure principal + interest to the depositors; it offers an additional layer of safety for the depositors, as opposed to depositors going around looking for borrowers & directly taking on the risk of default.
> 
> Not to mention, even if depositors were to lend directly to borrowers, they'll still be "discriminatory" in their practices as to whom they lend, they are not going to lend to every Tom, Dick & Harry that wants a loan! When depositors deposit with banks, this "screening process" for eligible borrowers is simply "outsourced" to the banks because *they are the ones taking the direct risk in that case*.


Note the part I put in bold. I am not attacking the discrimination process for credit, in itself , wherein "*they are the ones taking the direct risk*.  Under a truly free market:

a) no funding would be provided via a compulsory tax on all savers and other currency holders
b) risks would not be collectivized and shared, with everyone jointly, severally and ultimately liable for future failures 
c) rewards would only go to parties that took risks that succeeded in generating profits

What I am illustrating, not attacking, is how that discriminatory process works in the context of the theft, collectivization and _en masse_ dilution of the currency itself, which fuels the system as it is now artificially constructed, and which should never have taken place. 

*KEYNES' PROBLEM:*  Savers aren't spending enough fast enough, or are not putting their own funds to productive use. 
*KEYNES-SPAWNED SOLUTION* (in effect):  Perpetually and continuously seize an _exponentially increasing_ portion of funds from all savers. Put those funds into a collectivized pool that is to made available to commercial lending institutions, which can then use their discretion as to who are the most productive (credit-worthy) to which to lend these stolen funds. 

Macroeconomics considers everything that occurs after the fact, skipping over the fact that the entire system is founded on outright theft from all currency holders from its inception -- and all to solve a temporary theoretical phenomenon that is labeled "a problem in need of a statist solution". 

The _only_ time the discrimination process is governed and undistorted by free market principles is when it happens on their own behalf, or on behalf of those _who knowingly and willingly put their own money at risk_. As it stands now, credit discrimination by banks is only the process by which prospective winners and losers are chosen in the *Redistribution of Stolen Funds*, from which the banks alone can earn profits from something that _neither they nor their depositors created or produced_.  

The solution is not to take away the credit discrimination process -- the mere thought of which would be moronic, and would only exacerbate problems.  I only bring the process up to show that wealth is being outright stolen indiscriminately from savers, but then redistributed with extreme prejudice to only the most credit worthy.  Losers: savers - Winners: banks by default for the profits, and anyone-with-great-credit in terms of first whacks at new currency before it loses further value as a result of being brought into existence. 

This is not only a Stolen Wealth Redistribution process, where funds are seized (by force, and without permission) from one sector of the economy, and loaned out to another.  Because the process is deliberately inflationary (price inflation, with upward pressure on general price levels), it in turn creates an artificial _need_ (not demand) for more currency for everyone.  I say _need_, and not _demand_, because the _need_ for more currency on everyone's part occurs without regard to the ABILITY to acquire more, whereas _demand_, in the economic sense, assumes both the willingness _and ability_ to acquire more.  And since that _need_ on the parts of those who are not credit worthy can never be fulfilled with new money -- this brings us full circle to the discriminatory mechanism in place, at lending institutions -- the spigots and distribution channels for all new money, where all distortions begin to play out. 

Can you imagine a legislative proposal that reads, in essence: 

*All savers and other currency holders will be taxed perpetually, at an exponential rate, for the purpose of ensuring that:* 

a) a steady flow of funds are made available for commercial banks to lend, and that
b) the solvency of commercial lending institutions (of substantial enough size to affect the public interest) is assured, and
c) to ensure a steady flow of funds to the state which borrows on its own "good faith and credit" 

If you proposed it like this, without describing the mechanism by which the tax would be collected, what do you think everyone's response would be?  And yet that is _precisely_ what we have in place now. 

All currency holders, worldwide, are taxed, without being considered parties of interest, for the privilege of _subsidizing lending institutions_.  That's the lending, or supply side spigots and channels, of newly counterfeited currency.  On the borrowing, or demand side, these are divided into public/state (warfare and welfare) siphons, as well as private commercial interest siphons, all of which have privileged access to all the newly counterfeited currency.  

The state created a Fed system that steals from savers and redistributes their wealth to only the most credit-worthy. The state has extreme incentive to have such a system in place, because the state itself is always first in line in terms of its own credit-worthiness. The Fed it created would never say no. This is a counterfeit source of funds from which the state itself may also now borrow, through an hidden tax that occurs automatically, deliberately and exponentially, and requires no political representation.  Out of all the currency holders taxed to supply new currency, however, _only American taxpayers_ are taxed, once again (this time directly), to pay TWICE for the state's participation in the counterfeit borrowing (deficit spending) process; first their currency is taxed when it is diluted, and then they are taxed directly to service loans created from stolen funds as principle and/or interest payments become due.  




> Anyways, the reason I pointed out that _"there's always demand for money"_ is to point out that therefore, it's the supply that dictates the returns & incentives for saving/lending.
> 
> So, in an inflationary environment, where there's greater supply of credit & lower or negative REAL interest, it disincentivizes savers/depositors from depositting with banks (& look for non-bank investments) while a deflationary environment, where there's limited supply of credit & higher REAL interest, it incentivizes more savers/depositors to deposit more with banks.


I'll be creating a separate thread that deals with FRB illusions, as I think I have it pretty much distilled down to where it really zigs and zags, and why, specifically, it is fraudulent for reasons that should be glaringly apparent, but are rarely considered.  There is a _de facto legal tender-like aspect to commercial lending institutions_ that I will go into, and my arguments will include reasons why NO so-called "reserves" should even be required of _any lending institution_ under a truly free market in currency.  But that's for another thread.

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## Paul Or Nothing II

> The _only_ time the discrimination process is governed and undistorted by free market principles is when it happens on their own behalf, or on behalf of those _who knowingly and willingly put their own money at risk_. As it stands now, credit discrimination by banks is only the process by which prospective winners and losers are chosen in the *Redistribution of Stolen Funds*, from which the banks alone can earn profits from something that _neither they nor their depositors created or produced_.


Whatever profits banks earn by lending are by lending either their own capital they have acquired or that acquired from their depositors so I don't think there's anything "undeserved" that they are getting in terms of profits
Banks may take loans from Fed but they have to repay with interest so there are no freebies as such.
The point is that the money that banks lend comes primarily from depositors, though it seems you & many others seem to believe it comes in the form of "free money from Fed".

As has been pointed out already, PDs are a separate department from banking & PDs use their OWN money to buy Treasuries from Treasury Department then Fed buys it from PDs with new money, with which PDs buy Treasuries again.

If we look at this process more closely, it's like Treasury <> PDs <> Fed, now, let's get rid of PDs for a moment & you are left with Treasury <> Fed, it's essentially, the money-creating arm of the government (Fed) feeding the money-spending arm of the government (Treasury).

Sure, PDs make a little profit for their market-making services but what it truly is a system where government creates money to finance itself INDIRECTLY & as the Treasury spends this new money received from PDs (which PDs received from Fed for selling Treasuries to Fed), they push up demand & prices of goods/services/labor & such economic resources that they buy causing inflation, essentially stealing purchasing-power from everyone & as prices of things rise, incomes rise subsequently, which means people pay more in taxes as well.
On the other hand, continuous issuance of debt would lower its value & interest on debt would go up BUT because Fed buys it indirectly from Treasury, it pushes up demand for Treasuries which enables Treasury to rake in more money on their debt & simultaneously, it reduces interest to be paid on debt, which means less money going out of Treasury.

Then there's the seigniorage, that is, profit made by Treasury on producing notes & coins = face value of notes & coins produced - cost of production

The point is that this fallacious notion that Fed's money-creation somehow always directly benefits banks when in fact it's the government reaping enormous benefits from it, it's just that the process is so convoluted that it's difficult to realize it immediately. In fact, the process is so convoluted that it's very difficult to even quantify the monetary benefits that government receives because of Fed, it may be several 100s of billions at the least, may be trillions!




> I'll be creating a separate thread that deals with FRB illusions, as I think I have it pretty much distilled down to where it really zigs and zags, and why, specifically, it is fraudulent for reasons that should be glaringly apparent, but are rarely considered.  There is a _de facto legal tender-like aspect to commercial lending institutions_ that I will go into, and my arguments will include reasons why NO so-called "reserves" should even be required of _any lending institution_ under a truly free market in currency.  But that's for another thread.


Well, there have been numerous threads on RPF claiming FRB to be anti-liberty or anti-free market or being fraudulent in some way but none of them were able to substantiate themselves; the problem is that there are just too many misconceptions out there with regards to FRB & banking in general.
The fact is that the biggest opponent of FRB, Murray Rothbard, even he had to concede that there's nothing wrong with FRB so long as both parties voluntarily engage in it.
Banning FRB is like trying to ban drugs, prostitution, etc. Sure, you may think it's bad & risky or whatever but principles of liberty say that any activity that people engage in, voluntarily, is consistent with liberty & nobody else should be able to impinge on the liberties of the concerned individuals.

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## Paul Or Nothing II

> Heh you clearly don't know me very well





> You can throw that "voluntary and non-coercion" bull$#@! out the door


The statement above says more than enough about you & your attitude towards liberty.

You're like those "libertarians" that will talk the talk of liberty, freedom & all that but where rubber meets the road, you act like wannabe-commie-dictators, who support & oppose things based on what SEEMS palatable to YOU rather than standing by the principles of liberty at all times.

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## Steven Douglas

> Banks may take loans from Fed but they have to repay with interest so there are no freebies as such.
> The point is that the money that banks lend comes primarily from depositors, though it seems you & many others seem to believe it comes in the form of "free money from Fed".


Wow.  Where on Earth do you think the vast majority of currency in existence today, _including the banks' own capital and currency from depositors_, came from anyway? 

If I buy something and pay for it in good faith, and I sell it to you, and you turn around and sell it to someone else, it is not a 'freebie' to any of us. Each of us that bought and sold the item paid for it in good faith.  If we all later learn that the item was originally a stolen good, the fact that each of us paid for and then sold it in good faith along the way _will not make it any less of an originally stolen good_ -- not stolen by us -- WE didn't steal it, and we are not the thieves. But someone else did.  Furthermore, there is no amount of buying and selling on anyone's part that will make that originally stolen good any less of an originally stolen good.  

Now make that item a few billion fake silver coins, and let's say that I am the original counterfeiter. Let's further say that these are such good fakes that nobody detects them. Thus, only I know that they are counterfeit.  What I initially received for the coins is only part of the theft, part of the damage, which will ultimately be absorbed as a loss by whomever is holding them once they are finally detected as fakes -- which could be a long way down the road, as the creepy hot potato gets passed around.  Meanwhile, the issuance and circulation of these fakes has stolen value from all other coins in circulation, and continues to do so as long as they do remain undetected, as these billions are still being bought and sold in daily exchange.  *All in good faith.* The fact that people are paying for them won't make them any less so. 

Over just the past forty years alone, all of the new currency (in all forms) created out of thin air by the Fed is _orders of magnitude greater in quantity_ than all of the currency that existed just forty short years ago, let alone from the Fed's inception. That includes the vast majority in circulation, including that which is loaned to banks by their depositors.  *None of that currency is clean*. All of it is polluted. Every bit of it has been, and continues to be, diluted/debased/debauched by counterfeits.  And neither the fact that anyone pays for it, or repays it with interest, nor the fact that it continues to be bought and sold in exchange many times over again, will make it any less so. 

There is NOTHING that a bank borrows from the Fed _that wasn't stolen by the Fed from all currency holders_, with value that is siphoned right out of the collectivized/privatized legal tender currency pool. We know that counterfeit currency is 'legally' (using that term VERY loosely) created out of thin air. Its value, however, is not created out of thin air. That value comes from all other currency in existence as every single part of it is diluted in that very process.  The fact that this currency is borrowed from banks (or its borrowers by extension) and must be repaid with interest _by anyone along the way_ does not make it less of a counterfeit, nor its value any less than stolen from all other currency holders.  That makes the fact that anyone must repay it, let alone with interest, IRRELEVANT.

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## osan

> Why inflation is so modest with zero interest rates and after Q1 and Q2?
> 
> My own explanation (which might be bogus) is that government bonds are interchangeable with money, and when Bernanke printed money to buy bonds, he didn't in fact change the money supply, because bonds are part of the money supply. So banks now have one type of money (cash) instead of another type of money (bonds). So theoretically this shouldn't change much.
> 
> What do you think?


Possible, but unlikely IMO.  Bonds print money out of thin air because they must yield interest.  If the bond holders sold their bonds to the Fed at the purchase price, then your supposition holds.  But if they redeemed them at even a discounted yield, the money supply grew.

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## osan

> I'm not talking about CPI, but about the real inflation, which I think is quite modest, especially when compared with the huge amount of money printed.
> 
> What do you think about my explanation for this?


One possibility: http://www.ronpaulforums.com/showthr...=1#post4683690

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## Steven Douglas

Bonds and FRN's are often erroneously referred to as debt instruments, and are often conflated as both being part of the "money supply".   The comparison falls apart when you look at the nature of what each actually represents. Bonds are exchangeable, _not 'interchangeable'_ or in any way fungible, with FRN's. They are UNLIKE THINGS.  Likewise, stocks, gambling chips, celery and panty hose; they are also exchangeable with FRN's, but are not considered part of the money supply.   

In reality, bonds are debt instruments only--promises to pay later--which are sold in direct exchange for FRN's (promises to pay nothing) on the open market.  The bond may be considered an asset to the buyer, and a liability to the issuer; they can even be traded and exchanged as assets, but they are not _'circulated as'_ currency, so much as _'exchanged for'_ currency.  

The FRN's used to pay for bonds, on the other hand, are assets insofar as people will accept them in exchange. But they are not liabilities, nor are they promises to pay, to or by anyone.  FRN's always originate at some point as thin air currency that is _loaned into existence_ and distributed through commercial lending institutions. Once created, they are dead ends, and a means of floating, transient value in and of themselves.  

Some will say, "Well, bonds are also created out of thin air, so what's the difference?"

Where confusion comes in is the fact that FRN's are also often referred to as "debt instruments".  But that is a gross misnomer, and really $#@!ed up, mutated contortionist twist on definitions that once had different meaning entirely. 

A "note" is, by definition, an "instrument of debt" and "evidence of debt".  Once upon a time, that only meant that the issuer of the note "owed" the bearer something tangible in exchange for the note. The note was not considered "payment" in and of itself, but only a promise to pay in something other than itself, which could then be circulated as such.  

In reality, FRN's are technically a "note" (albeit of a different kind), and they are also (again, technically) "evidence of debt". But that is only because of the mechanism by which FRN's happen to be ::: POOFED ::: into existence by being _loaned into circulation_.  Thus, it is "evidence" that a debt probably occurred somewhere along the way.  They are NOT, however, an "instrument of debt". Not any more. 

When you hold a FRN, you are not in possession of a debt; not to yourself or anyone else. The fact that it may be traced to some original debt, or any subsequent debts, is incidental.  You are definitely, most likely in possession of something that was brought into existence _through a debt_, but the fiat paper note you hold in your hand _is not a debt_ - not to the holder or the original borrower or anyone in between. A laborer receiving FRN's as payment for wages incurs no debt, and likewise is not in possession of a debt to anyone.  FRN's, interchangeable and fungible only with themselves, are free of ALL promises to be paid in anything else. 

Only an actual loan agreement is a _debt instrument_. That takes on different forms, depending on the borrower and lender, but the basic principle is the same in all cases.  In the case of the government bond, only the bond itself the debt instrument.  

The irony is that a bond, paid for with FRN's, is nothing but a promise to pay the bearer in future FRN's, all of which have no further promise attached. That 'buck', along with whatever value in exchange it _incidentally_ manages to hold onto, always stops with the holder. 

The mechanism by which QE_n_ show up as price inflation are a different matter.  Bonds with pathetic yields that don't keep pace with inflation, drive everyone (except the Fed) out of the bond market, and into turnip-squeezing malinvestment in a freshly re-inflated stock market.  The stock market is a flukey kind of debt instrument, akin to place markers on a roulette wheel or a crap table. There is no set promise pay - only a chance to gain or lose. As long as stock holders are keeping their currency busily betting against each other on those tables, that currency is not competing for, nor is it bidding up the prices on, real tangible assets.  But that's already coming to an end. As more people realize there are no gains to be had in stocks OR bonds, all of them will sold to compete for anything of any real value relative to the fiat no-promise-to-pay-anyone currency.

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## Paul Or Nothing II

> Wow.  Where on Earth do you think the vast majority of currency in existence today, _including the banks' own capital and currency from depositors_, came from anyway?


I'm not arguing where it came from but who the beneficiary is.

Just because money ends up with banks somewhere down the line through their depositors, doesn't mean they are necessarily the beneficiaries; if that were true then it could be said that you, I & everyone else is also somehow the "beneficiary" of all that money-creation since that money ends up in our pockets somewhere down the line too.




> If I buy something and pay for it in good faith, and I sell it to you, and you turn around and sell it to someone else, *it is not a 'freebie' to any of us*. Each of us that bought and sold the item paid for it in good faith.  If we all later learn that the item was originally a stolen good, the fact that each of us paid for and then sold it in good faith along the way _will not make it any less of an originally stolen good_ -- not stolen by us -- WE didn't steal it, and we are not the thieves. But someone else did.  Furthermore, there is no amount of buying and selling on anyone's part that will make that originally stolen good any less of an originally stolen good.


The point is that that none of us (including banks) can be accused of thievery except the thief himself (Fed/government) because he took something without paying for it while rest of us paid to buy it.




> There is NOTHING that a bank borrows from the Fed _that wasn't stolen by the Fed from all currency holders_,


Let's get a few things straight:
1) When Fed buys something, new money is created & when Fed sells something, money is destroyed.
2) When Fed lends, new money is created & when loan is repaid, principal is destroyed & profit is eventually credited to Treasury.
3) Most of the money that permanently remains in the economy (nearly all until recent MBS purchases) is created through purchase of Treasuries & this permanent increase is basis of inflation in the long-run.

It has been repeatedly pointed out in this thread that banks DON'T usually borrow from Fed because Fed charges much higher interest than the market-rate & there's a stigma attached with borrowing from Fed as banks which can't borrow from the market are seen as unhealthy.
Banks may borrow short-term (usually overnight) which doesn't have inflationary implications because money is lent/created & repaid/destroyed very quickly while longer loans are given occasionally, usually during a crisis & such but again, this money doesn't remain in the economy as it's destroyed upon repayment.

So it is usually the money lent to the Treasury (Treasuries bought by Fed) that forever remain unpaid (net borrowing) & grow, which is what counts for long-term inflation.

----------


## Paul Or Nothing II

> I am pretty sure Paul Or Nothing II a disinformation agent or a banker. I had a great conversation with him a year or so ago and he understands sound money as well as anyone. He even argued that Bitcoins were not good money because they are not tangible, and I agree with that. If you can't hold it in your hand, then it is not really yours.
> 
> If you read his stuff, he knows exactly what he is doing. He tries to portray you as something you are not. 
> 
> I've read your stuff. You & I disagree on a few things, yet I know you are a sincere defender of liberty.


If the Fed & the current system is so beneficial to banks then why would a banker or a disinformation agent be against Fed & for free market in money?

Clearly, critical thinking is not the norm here! Just label anyone whatever you want & act as if that's the truth, that's how it goes I guess........

----------


## Travlyr

> If the Fed & the current system is so beneficial to banks then why would a banker or a disinformation agent be against Fed & for free market in money?
> 
> Clearly, critical thinking is not the norm here! Just label anyone whatever you want & act as if that's the truth, that's how it goes I guess........


I call it like I see it. You are a banker apologist. If you want to be taken seriously as a freedom fighter then stop pretending that fractional reserve banking is a free market idea. Stop pretending that bankers should have special privileges in life. Stop promoting the idea that modern banking is anything other than what it is... outright theft.

----------


## TheTexan

> Banks aren't coercing anyone to deposit or to borrow, they aren't printing money nor coercing anyone to take it.
> It's the government that creates money & it coerces people in all sorts of ways. If you can't grasp such basic things then I don't see any point in responding to you anymore.


Fraud is absolutely coercive behavior.  They created the system.  They pay big bucks to keep the fraud going.  They are not innocent in this.  Not by a damned long shot.

Keep apologizing for them, apologist

----------


## Steven Douglas

> Banks may borrow short-term (usually overnight) which doesn't have inflationary implications because money is lent/created & repaid/destroyed very quickly while longer loans are given occasionally, usually during a crisis & such but again, this money doesn't remain in the economy as it's destroyed upon repayment.
> 
> So it is usually the money lent to the Treasury (Treasuries bought by Fed) that forever remain unpaid (net borrowing) & grow, which is what counts for long-term inflation.


It appears that you are trying to make the point that it is not the commercial banks, but the Treasury through its deficit financing, that bears the greatest responsibility for monetary inflation.  I don't let the Treasury off the hook for its role in monetary inflation, but neither do I believe that there would be no inflation without deficit spending by the Treasury.  What you are ignoring, or seem to be forgetting, is that the _Treasury does not borrow directly from the Fed_--not since 1935, when that authority was repealed.  There are middlemen involved in all that "borrowing", who are the first recipients and beneficiaries of trading in those counterfeited funds. 

You are also ignoring quantitative easing, and the effect on the money base that this has had on the counterfeit currency supply, with the new rule in place since 2008 that corporate bonds and mortgage-backed securities can now be _purchased_ directly by the Fed from commercial banks.  The Treasury has a role in that, but the Fed is not "loaning" that currency to the banks.  They are making _outright purchases_ of toxic debts, in exchange for a direct infusion of newly counterfeited currency _which is not destroyed_, to banks.  And the only mechanism that keeps that currency from flooding directly into the economy is the fact that the Fed is also doing something else unprecedented, and that is paying the banks (YET AGAIN), to park those funds with the Fed. 




> It has been repeatedly pointed out in this thread that banks DON'T usually borrow from Fed...


This completely glosses over the fact that most of the currency in existence, including that which banks "_DON'T usually borrow from Fed_" did not come into existence any other way.  Every bit of it is the result of dilution and debasement of the currency.   




> The point is that that none of us (including banks) can be accused of thievery except the thief himself (Fed/government) because he took something without paying for it while rest of us paid to buy it.


I already stipulated that we are not the thieves, but that point, once again, completely ignores the fact that everyone is circulating an ever-widening pool of counterfeit/stolen goods, and no amount of buying or selling will lend any legitimacy to any of it, or wash any of it clean.  




> ...there's a stigma attached with borrowing from Fed as banks which can't borrow from the market are seen as unhealthy.


Oh yeah? I don't think that Wells Fargo, BofA, JPMorgan Chase & Co., et al, are ultimately too concerned about stigmas where it counts most to them.  They're all $#@!ing "unhealthy", and on so many levels.




> Let's get a few things straight:
> 1) When Fed buys something, new money is created & when Fed sells something, money is destroyed.
> 2) When Fed lends, new money is created & when loan is repaid, principal is destroyed & profit is eventually credited to Treasury.
> 3) Most of the money that permanently remains in the economy (nearly all until recent MBS purchases) is created through purchase of Treasuries & this permanent increase is basis of inflation in the long-run.


We're arguing around each other, because there is a lot we agree on, but also a lot that is being ignored along the way.  

The amount of currency the Fed creates or destroys is irrelevant, because _on net_ there is always more currency created than is destroyed over time; _exponentially more, without or without Treasury involvement or deficit financing by government_.  This exponential expansion is an absolute requirement, not of the Fed, or the Treasury, which could in theory finance government through direct taxation alone, but of _the entire banking system_, as there must always be enough interest in the economy to be repaid to banks so that they can retain _the illusion of solvency_.  And that is ONLY because while prices decrease _in nominal value_ in a deflationary environment, the debts issued by banks, including the interest required to repay them, do not.  

*Banks are The Children of The Fed, and state is their Godfather.* The Fed by itself is the least beneficiary of its thefts, as it placates one to benefit the others.  The Fed was created to facilitate and protect the interests of _commercial banks_. The fact that government has the ultimate mechanism for taxation without representation, along with the fact that each member must pay something for the privilege of being *part of a currency cartel* is IRRELEVANT to the fact that the Fed exists primarily for their benefit, their ability to *thrive during booms and survive during busts*, and ultimately behaves in ways that defends and protects their interests - their illusion of solvency.

----------


## Paul Or Nothing II

> It appears that you are trying to make the point that it is not the commercial banks, but the Treasury through its deficit financing, that bears the greatest responsibility for monetary inflation.


Yes, if you borrow, essentially from everyone as the new money essentially robs purchasing-power from everyone, & then don't pay back then that's the free-ride on the backs of everyone.
Banks that borrow have to pledge assets so they can't get away so easily while Treasury takes the new money  (thru PDs) & never pays back - free-ride




> I don't let the Treasury off the hook for its role in monetary inflation, but neither do I believe that there would be no inflation without deficit spending by the Treasury.


Central-banks are primarily created to finance governments, it mayn't be their directly stated role but they are supposed to keep the interest on debt low (to prevent government bankruptcy) by stepping in & buying debt as much as necessary to keep interest on debt low.

In other words, central-banks exist to facilitate deficit-spending, Ron Paul has pointed this out a number of times.




> What you are ignoring, or seem to be forgetting, is that the _Treasury does not borrow directly from the Fed_--not since 1935, when that authority was repealed.  There are middlemen involved in all that "borrowing", who are the first recipients and beneficiaries of trading in those counterfeited funds.


It's irrelevant whether Treasury borrows directly from Fed or not because the end-results are pretty much the same.

1) If Fed directly bought Treasuries from Treasury then it would drive up its demand & price raking in more money for Treasuy while driving down interest on debt.
2) PDs buy Treasuries with their OWN money, Fed buys Treasuries from PDs with new money, PDs go & buy more Treasuries from Treasury to refill their stock - which drives up demand & price of Treasuries raking in more money for Treasury & reducing its costs by driving down interest on debt.




> You are also ignoring quantitative easing, and the effect on the money base that this has had on the counterfeit currency supply, with the new rule in place since 2008 that corporate bonds and mortgage-backed securities can now be _purchased_ directly by the Fed from commercial banks.  The Treasury has a role in that, but the Fed is not "loaning" that currency to the banks.  They are making _outright purchases_ of toxic debts, in exchange for a direct infusion of newly counterfeited currency _which is not destroyed_, to banks.  And the only mechanism that keeps that currency from flooding directly into the economy is the fact that the Fed is also doing something else unprecedented, and that is paying the banks (YET AGAIN), to park those funds with the Fed.


MBS are a recent phenomena & I've already explained the problems it will create but using that as an example of "Fed grossly benefitting banking" wouldn't suffice because one must realize that since 1913 until the recent crash, Fed had hardly ever created money & given it to banks without them having to pay back with interest & of course, repayment destroyes money.

Again, continuous inflationary implications are only there if newly created money remains in the system but if it's paid back then it gets destroyed & you can't claim that they have stolen anything from the economy (unlike Treasury which never pays back on the NET)




> This completely glosses over the fact that most of the currency in existence, including that which banks "_DON'T usually borrow from Fed_" did not come into existence any other way.  Every bit of it is the result of dilution and debasement of the currency.


Again, the POINT is that it's the government/Treasury that benefitted from that dilution/debasement, not the banking in general as is popularly assumed.




> I already stipulated that we are not the thieves, but that point, once again, completely ignores the fact that everyone is circulating an ever-widening pool of counterfeit/stolen goods, and no amount of buying or selling will lend any legitimacy to any of it, or wash any of it clean.


I'm not ascribing any "legitimacy" to the system, I'm merely trying to point out that it's mostly the government that benefits through the loss of purchasing-power that occurs due to inflation created by Fed's money-creation, not the banking in general.




> Oh yeah? I don't think that Wells Fargo, BofA, JPMorgan Chase & Co., et al, are ultimately too concerned about stigmas where it counts most to them.  They're all $#@!ing "unhealthy", and on so many levels.


Well, I did mention the exception of crises.

Besides, as can be seen, bailouts are NOT "free money", banks have to pay it back with interest & when they do, the money created to loan them gets destroyed, if they aren't able to pay back then their pledged assets are sold & money gets destroyed; so usually there are no permanent inflationary implications as there are with Treasuries.




> The amount of currency the Fed creates or destroys is irrelevant, because _on net_ there is always more currency created than is destroyed over time; _exponentially more, without or without Treasury involvement or deficit financing by government_.


Again, look at what Fed usually buys to create NET new money......after repeal of gold-standard until the crash, it was mostly Treasuries.....the Fed's stock of Treasuries always seems go up perpetually so that's where the stolen purchasing-power has been going.




> their illusion of solvency.


While it is true that central-banks do help commercial-banks sustain the "illusion of solvency", it usually doesn't lead to inflation & siphoning of the purchasing-power in the long-run because as I've said, banks have to pay back the loans with interest & when they do, the money gets destroyed (well, it's destroyed even if they don't as Fed will simply sell banks' pledged assets)

----------


## Paul Or Nothing II

> I call it like I see it. You are a banker apologist.


Well, I'd rather defend a private market rather than defending coercive governments like you do.




> If you want to be taken seriously as a freedom fighter then stop pretending that fractional reserve banking is a free market idea.


Liberty means people being free to engage in voluntary transactions so whether you like it or not, if other people wish to engage in FRB then that's a perfectly legitimate free market idea.




> Stop pretending that bankers should have special privileges in life. Stop promoting the idea that modern banking is anything other than what it is... outright theft.


Well, you can't separate central-banking & commercial-banking, can you? It's the central-banks/government that print money, not banks in general.

----------


## Travlyr

> Central-banks are primarily created to finance governments,


No they are not. Central banks are created to enrich the central banker. 

Central banks do finance governments because they know that government has the power to tax the people to pay them back. It is much less risky to loan to a government than it is to loan to individuals. Central bankers have the ability to create "money out of nothing" and get paid back with interest. It is a total rip off scam.

----------


## Travlyr

> Well, I'd rather defend a private market rather than defending coercive governments like you do.
> 
> 
> 
> Liberty means people being free to engage in voluntary transactions so whether you like it or not, if other people wish to engage in FRB then that's a perfectly legitimate free market idea.
> 
> 
> 
> Well, you can't separate central-banking & commercial-banking, can you? It's the central-banks/government that print money, not banks in general.


You can't end the state. You can end central banking. You can even throw banker thieves in jail if they don't stop stealing. You can't end the state. The state is here to stay. And that is a good thing because a state is required if homeownership is desired. You can make the state benign. Our forefathers nearly did.

----------


## Paul Or Nothing II

> Fraud is absolutely coercive behavior.  They created the system.  They pay big bucks to keep the fraud going.  They are not innocent in this.  Not by a damned long shot.
> 
> Keep apologizing for them, apologist


I don't know what "fraud" you are talking about but if that's an inference to money-creation then that's the problem caused by government, not banking in general.

And you are just offering speculative accusations like most conspiracy-theorists, & that too only because you don't seem to grasp the magnitude of benefit that the current system offers to the GOVERNMENT. What PDs make is peanuts compared to what government makes under the system. And again, PDs engage in a voluntary service, there's no fraud or coercion involved on their part; it's the government that uses coercion.

And even IF we assume your speculative accusations to be true, one must realize that markets run on self-interest & profits so if there's an institution with coercive powers then market-participants will try to use it for their own self-interest & profits, in such a scenario, you can either keep pointing fingers at every market-participant that uses the system or you can point finger at the root of the problem - the existence of coercive institution itself.

----------


## Travlyr

> Well, I'd rather defend a private market rather than defending coercive governments like you do.


You are not defending private markets. If banking was a private market then anyone could start one. Modern day banking requires permission. That is not a free market.




> Liberty means people being free to engage in voluntary transactions so whether you like it or not, if other people wish to engage in FRB then that's a perfectly legitimate free market idea.


FRB is fine if anybody and everybody could do it. Then nobody would do it. In a free market it makes no sense to put money in a FRB. Why risk losing money to a thief when you can start your own bank? It makes no sense. 




> Well, you can't separate central-banking & commercial-banking, can you? It's the central-banks/government that print money, not banks in general.


Money can't be printed. Money is mined, grown, or sewn. Currency can be printed and if that currency is 100% redeemable for something of value, then it is as good as gold. If it is not 100% redeemable then somebody is getting paid or ripping somebody off.

----------


## Paul Or Nothing II

> No they are not. Central banks are created to enrich the central banker. 
> 
> Central banks do finance governments because they know that government has the power to tax the people to pay them back. It is much less risky to loan to a government than it is to loan to individuals. Central bankers have the ability to create "money out of nothing" and get paid back with interest. It is a total rip off scam.


Clearly, you have no clue that the interest on debt owned by Fed goes right back to Treasury. This nonsense conspiracy-theory has been debunked many times on these forums. Do your research or keep smoking the conspiracy-dope!

I really can't debate when someone is so ignorant of such basic things.

----------


## Travlyr

> I don't know what "fraud" you are talking about but if that's an inference to money-creation then that's the problem caused by government, not banking in general.
> 
> And you are just offering speculative accusations like most conspiracy-theorists, & that too only because you don't seem to grasp the magnitude of benefit that the current system offers to the GOVERNMENT. What PDs make is peanuts compared to what government makes under the system. And again, PDs engage in a voluntary service, there's no fraud or coercion involved on their part; it's the government that uses coercion.
> 
> And even IF we assume your speculative accusations to be true, one must realize that markets run on self-interest & profits so if there's an institution with coercive powers then market-participants will try to use it for their own self-interest & profits, in such a scenario, you can either keep pointing fingers at every market-participant that uses the system or you can point finger at the root of the problem - the existence of coercive institution itself.


Do you know who Paul Warburg was? He is the architect of the Federal Reserve System. He was chief counterfeiter in charge for many years. They called him "Daddy Warbucks" because he became the richest man in America on a scant salary. He described himself as an international banker. He was born in Germany and came to America to turn us into Amerika. Bankers control governments not the other way around.

----------


## Travlyr

> Clearly, you have no clue that the interest on debt owned by Fed goes right back to Treasury. This nonsense conspiracy-theory has been debunked many times on these forums. Do your research or keep smoking the conspiracy-dope!
> 
> I really can't debate when someone is so ignorant of such basic things.


There are two systems of money. 

One, the one you support, allows special privileges of creating currency with the force of law. "legal counterfeiting." Along with legal counterfeiting comes managed society socialism, tyranny, wars, and poverty.

The other is honest sound money where no one is allowed the privilege of creating money. Money must be mined, grown, or sewn. Counterfeiting is a crime. That is the system I support because that promotes free trade, liberty, peace, and prosperity.

----------


## Steven Douglas

> While it is true that central-banks do help commercial-banks sustain the "illusion of solvency", it usually doesn't lead to inflation & siphoning of the purchasing-power in the long-run because as I've said, banks have to pay back the loans with interest & when they do, the money gets destroyed...


For the record, and for the sake of precision, and clarity of understanding, I avoid the unqualified use of the word 'inflation' wherever possible as it applies to economics. 

*Price Inflation*, or 'inflation' as commonly understood when used by itself, refers only to a general increase in price levels. Thus, it is a description of an effect, _without regard to its many possible causes_. So it is no wonder that this definition is the much preferred default by statists, monetarists and Keynesian-spawned schools of thought, because the term is so nebulous and imprecise as to be forever moot, as it lends itself to myriad reality-obfuscating interpretations.   

*Monetary Inflation*, on the other hand refers only to an increase in the aggregate currency supply--_by any amount_, regardless how, when or where it circulates.  If you counterfeit and circulate a single dime you have caused monetary inflation to that extent. This definition is an extremely precise, indisputably positive description of a specific cause, _without regard to its many effects_.   How that might lead to 'price inflation' is another story altogether.  Follow the money--the cause, and not its much-debated effects, or whether or not they are discernible, or can be attributed to monetary inflation.  

Each loan under the currency creation/destruction process you described above has a _monetary inflation/deflation_ curve of its own.  Considering the case of only a single loan in the creation/destruction process, _monetary inflation_ occurs the very moment that new currency comes into existence as a result of that loan, with _monetary deflation_ occurring as that loan is repaid and the principle is destroyed.  The only thing that ultimately happens, once the loan is repaid, is that wealth was transferred in the form of interest as it was channeled into/through the bank.  _Monetary inflation_ occurs, however, so long as any counterfeited currency in that creation/destruction process still exists. Thus, loan payments only deflate the bubble originally created in the supply--not the original supply.  

You say that "...banks have to pay back the loans with interest & when they do, the money gets destroyed...", which implies 1) there was no net effect on the exchange value of the currency in the interim, and 2) there is no net new money in the system _when all is said and done_. 

Two problems with that:  

1) there is always an _interim effect_, and 
2) nothing is ever "all said and done"  

In reality, there is _always_ monetary inflation which leads inexorably to _price inflation_) in this process. That is because there is always a new and ever-expanding crop of loans to replace all the principle that is being destroyed from prior loans long before they are repaid.  You say that principle is destroyed as banks pay back loans with interest, but the aggregate debt pool always expands at a faster rate than the loans that are being repaid.  That is an absolute mathematical requirement for the survival of the entire FRB system, which cannot survive otherwise (under any regime), making it little more than a Ponzi scheme. The Federal Reserve is there to facilitate and provide cover and efficiency to that scheme, and to disguise its inherent insolvency.   

This is where increase-consumption-at-all-costs ("grow the economy") comes into play, and goes to the heart of why I believe mainstream economists (Krugman et al) do not include private debt as factors in macroeconomic models, and yet will argue out of the other side of their mouths that spending, consumption, and private debt in the aggregate must expand to keep the economy 'stimulated'.

----------


## Zippyjuan

> Clearly, you have no clue that the interest on debt owned by Fed goes right back to Treasury. This nonsense conspiracy-theory has been debunked many times on these forums. Do your research or keep smoking the conspiracy-dope!
> 
> I really can't debate when someone is so ignorant of such basic things.


Last year they gave back $77 billion to the US Treasury. Not just interest on the Treasuries they own but the profits they earn from other actions and investments as well (minus their expenses). 
http://www.nytimes.com/2012/01/11/bu...sury.html?_r=0



> *Fed Turns Over $77 Billion in Profits to the Treasury*
> 
> By BINYAMIN APPELBAUM
> 
> Published: January 10, 2012 
> 
> 
> WASHINGTON — The Federal Reserve said on Tuesday that it contributed $76.9 billion in profits to the Treasury Department last year, slightly less than its record 2010 transfer but much more than in any other previous year. 
> 
> ...

----------


## TheTexan

> I don't know what "fraud" you are talking about but if that's an inference to money-creation then that's the problem caused by government, not banking in general.


The bankers control the government.  FEC records alone prove this.  There's a reason why pro-Fed candidates are more successful in politics.  Political donations and PAC's are just an "operating cost" for the bankers.  Goldman Sachs for example has its own PAC.  I wonder what causes they support?

This claim that, it's not their fault, because the government is doing it, not them, is part of the scam.  If I were to hire a hitman to pull the trigger, I'd be just as responsible for the murder.  But somehow, if I were to hire the government to do the same thing, it's not my fault, because it's the _government_ that is coercive?  I don't buy that for a second.

Making profits off the Fed is one thing.  But when you profit enormously off this counterfeit money, *AND* lie through your teeth about it *AND* pay the coercive institution known as government to maintain it, that's fraud.  Plain and simple.

----------


## Paul Or Nothing II

> You say that "...banks have to pay back the loans with interest & when they do, the money gets destroyed...", which implies 1) there was no net effect on the exchange value of the currency in the interim, and 2) there is no net new money in the system _when all is said and done_.


I didn't imply 1) although I didn't clarify on that point because I didn't want to elongate the posts even more; on the other hand, I've already talked about 2), pointing out that most of this NET new money continues to exist as money created to finance the Treasury by almost perpetual NET purchases of Treasuries.

Of course, it could be said that there's a temporary inflationary effect in the interim but that depends on how long the money remained in the system; nonetheless, however much its effect on the people at large, so long as you are paying its cost, you can hardly be accused of theft.
In fact, such an effect occurs in various markets, for example, the more oil you buy, the more it may temporarily push up demand & prices & it could be argued that you have reduced, at least temporarily, other people's purchasing-power to buy oil compared to a scenario where you didn't buy oil at all or bought less than you actually did but the answer to that contention is that you paid the cost for it on the market.
Similarly, banks pay the cost of borrowing, banks either borrow from savers/depositors or from Fed, Fed charges much higher rate which makes it less profitable to borrow from Fed so they borrow from Fed only when it's absolutely necessary.
If there was no Fed, then banks would be paying this cost of borrowing only to savers/depositors but since there's Fed with power to create money (steal & lend others' purchasing-power), the interest-cost that banks would have otherwise paid to savers/depositors ends up being paid to Fed, & of course, by effect it ends up in Treasury's pocket as Fed hands over its profits to Treasury. This could essentially be construed to be the value absorbed from people during that temporary inflation.




> That is because there is always a new and ever-expanding crop of loans to replace all the principle that is being destroyed from prior loans long before they are repaid.


Again, it's not always very profitable to borrow from Fed because of higher interest charged so banks don't like continuously rolling over their loans, Treasury doesn't mind it because they don't have to pay any interest-cost to Fed because whatever Treasury _"pays"_ to Fed comes right back to Treasury but that's not how it works for banks, they have to go out there, provide voluntary services, make profits while balancing the risk of borrower-defaults, & no, Fed doesn't help all the banks all the time, many banks fail without recourse so the notion that Fed exists purely to support banking-industry as a whole is rather facetious, whatever loaning/bailing Fed does occurs according to their belief that banking-collapse, especially collapse of bigger banks, will lead to more problems & public-outrage due to recessions.

Further, as I've said, you can look at the NET monetary-inflation that Fed has created over the years until the recent crisis, most of the increase is due to continuous NET increase in Fed's stock of Treasuries.

----------


## Paul Or Nothing II

> The bankers control the government.  FEC records alone prove this.  There's a reason why pro-Fed candidates are more successful in politics.  Political donations and PAC's are just an "operating cost" for the bankers.  Goldman Sachs for example has its own PAC.  I wonder what causes they support?
> 
> This claim that, it's not their fault, because the government is doing it, not them, is part of the scam.  If I were to hire a hitman to pull the trigger, I'd be just as responsible for the murder.  But somehow, if I were to hire the government to do the same thing, it's not my fault, because it's the _government_ that is coercive?  I don't buy that for a second.
> 
> Making profits off the Fed is one thing.  But when you profit enormously off this counterfeit money, *AND* lie through your teeth about it *AND* pay the coercive institution known as government to maintain it, that's fraud.  Plain and simple.


Ok, let's use your reasoning then. Ok, let's presume all of your speculative accusations to be true & incriminate all the PDs, banks or whoever for bribing government to indirectly steal, defraud & whatever & put'em all into prison.

What next? You know there's a big chunk of the population which bribes government through votes as well as money to steal money from some people & give it to them or others, well, we must then put'em all in prison for indirect theft.

What next? You know there's another chunk of the population which bribes government through votes as well as money to go to wars & kill so we must also put them into prison for indirect murder.

Well, going by that reasoning, most of the population would be in prison for none of them has committed any direct coercion against anyone! 

Liberty emphasizes a lot on people being INDIVIDUALS & that would presume that people can only be held accountable for their OWN coercive actions.

Do you think each of the welfarist would go around stealing people's money if the government had no coercive powers? Do you think war-mongers would go to foreign countries to kill people if government had no coercive powers? Do you think Fed would even be there if it wasn't for a coercive government? It's the government's "legal" coercive powers that enable all of this. Instead of recognizing this, if you attack people for following what they perceive to be in their self-interest without direct coercion, which is how a market naturally works, then you are in effect dissing the market itself & pushing people away from the free market & towards coercive government.

Such thinking leads to ultra-liberal thinking of absurd proportions where one starts believing that _"if we could just stop people from trying to use government for their self-interest then government would be great"_, overlooking the root of the problem itself - coercive government.
Case in point :



> The state is your friend if you are a homeowner or a property owner.


Again, people & markets are driven by self-interest & profit, you can never stop this market-process & hence, so long as the government has coercive powers, people will continue to try to use it to their advantage, expecting them to not to do that is like expecting markets not to work - it's not going to happen! So the focus must at all times be on getting rid of government's "legal" coercive powers.

----------


## Travlyr

> *So the focus must at all times be on getting rid of government's "legal" coercive powers.*


Count me out of your libertarian Utopia. 

I subscribe to the classical liberal philosophy. I want to keep my rights to own a home and have a monopoly of force in my home. I want the support of state law to back me up if I have to eliminate thieves or intruders from my home.

----------


## Paul Or Nothing II

> Count me out of your libertarian Utopia. 
> 
> I subscribe to the classical liberal philosophy. I want to keep my rights to own a home and have a monopoly of force in my home. I want the support of state law to back me up if I have to eliminate thieves or intruders from my home.


So you don't believe in equality? You believe that people in government should have the "legal" power to coerce others while not everyone else can do the same?
Well, if one believes in equality of rights for all people then one must believe that nobody should be able to coerce anyone else.

----------


## Paul Or Nothing II

Oh yeah, governments are innocent little children! Governments don't like the power of issuing money! Governments didn't create central-banking to benefit themselves! 




0:41 onwards

"*Like all government created monopolies, the federal monopoly on money results in substandard product in the form of our ever-depreciating dollars. 

Yet governments have always sought to monopolize the issuance of money, either directly or through the creation of central banks. The expanding role of the Federal Reserve in the 20th century enabled our federal government to grow wildly larger than would have been possible otherwise. Our Fed, like all central banks, encourages deficits by effectively monetizing Treasury debt.*"

Governments have sought to control money & its issuance for a long long time, from the Roman emperors debasing the content in their coins to increase total supply to Chinese rulers' issuance of first modern paper-money to modern governments & their central-banks with their surreptitious debt-monetization. Saying that governments didn't create central-banking to finance & benefit themselves is like saying that earth is flat - the evidence is far too overwhelming when looked at through the lens of reason & critical-thinking!

----------


## TheTexan

> What next? You know there's a big chunk of the population which bribes government through votes as well as money to steal money from some people & give it to them or others, well, we must then put'em all in prison for indirect theft.


And they too are accountable for their actions.  I wouldn't throw them in prison though.  I don't like the idea of prisons.  (Prefer restorative compensation or deportation).

However, their crimes pale in comparison to the heinousness and magnitude of the unforgivable crimes of the Federal Reserve.




> What next? You know there's another chunk of the population which bribes government through votes as well as money to go to wars & kill so we must also put them into prison for indirect murder.


They do deserve it, that much is true.




> Well, going by that reasoning, most of the population would be in prison for none of them has committed any direct coercion against anyone! 
> 
> Liberty emphasizes a lot on people being INDIVIDUALS & that would presume that people can only be held accountable for their OWN coercive actions.


You're still trying to tell me here that if I hire a hitman to pull the trigger, and a person dies, I didn't do anything wrong because I didn't pull the trigger.

Calling it "government" does not give anyone a free pass.




> Do you think each of the welfarist would go around stealing people's money if the government had no coercive powers? Do you think war-mongers would go to foreign countries to kill people if government had no coercive powers? Do you think Fed would even be there if it wasn't for a coercive government? It's the government's "legal" coercive powers that enable all of this. Instead of recognizing this, if you attack people for following what they perceive to be in their self-interest without direct coercion, which is how a market naturally works, then you are in effect dissing the market itself & pushing people away from the free market & towards coercive government.


You're trying to act like government is some abstract entity coercing and shoving people around all by itself.  It's not.  Most people are coercive, and the government is simply a reflection of that.  Bankers have bought themselves positions of power, allowing them to be even more coercive, and buy even more power, so I do hold them more culpable than the average Joe voter, but the bottom line is putting a 'government' label on their actions doesn't make it any less of a crime.




> Such thinking leads to ultra-liberal thinking of absurd proportions where one starts believing that _"if we could just stop people from trying to use government for their self-interest then government would be great"_, overlooking the root of the problem itself - coercive government.


Self interest?  If hiring a hitman is in my self interest, that makes it ok?  How does that even begin to make sense?

If stealing on the order of trillions is in my self interest?  That's ok?  No, it's not ok.  And manipulating elections to get the government to do it for you, is also, NOT OK.

Modern central banking, and the bankers responsible for it, are responsible for the single greatest assault on human liberties in the history of mankind.  Their crimes are not to be forgiven or overlooked.

----------


## Travlyr

> Oh yeah, governments are innocent little children! Governments don't like the power of issuing money! Governments didn't create central-banking to benefit themselves! 
> 
> 
> 
> 
> 0:41 onwards
> 
> *Like all government created monopolies, the federal monopoly on money results in substandard product in the form of our ever-depreciating dollars. 
> 
> ...


You are aware, are you not, that the Fed is not a Constitutional entity?

"To Regulate The Value Of Money"

----------


## Travlyr

> So you don't believe in equality? You believe that people in government should have the "legal" power to coerce others while not everyone else can do the same?
> Well, if one believes in equality of rights for all people then one must believe that nobody should be able to coerce anyone else.


This is correct. I do believe that I have more of a right to my home than you. And I expect the State laws to back me up on that if I must use force to remove an unwanted intruder.

I agree with Mises and Ron Paul and I disagree with Rothbard on that.




> We call the social apparatus of compulsion and coercion that induces people to abide by the rules of life in society, *the state*; the rules according to which the state proceeds, *law*; and the organs charged with the responsibility of administering the apparatus of compulsion, *government*. - Ludwig von Mises

----------


## Paul Or Nothing II

> You're still trying to tell me here that if I hire a hitman to pull the trigger, and a person dies, I didn't do anything wrong because I didn't pull the trigger.


It's not about what's "right" or "wrong" but whether someone is using coercion or not, of course, there may be different views on "right" or "wrong", for example, it may be considered "wrong" for someone to let a child starve but since there's no coercion, the parent(s) can't be held responsible.

Each person can only be held responsible for his own coercive actions & not of someone else's, so long as hitman is free to make a choice, only he can be held responsible; the crime mayn't even occur if he refused to do it because obviously his client doesn't want to get his hands dirty. There may be different views on this but having things any other way can make things far too arbitrary.

Again, you're too much into conspiracy-theories & therefore unwilling to look at facts such as the magnitude of benefits to government & that banks don't get any "free money" as is assumed while I prefer to rely strictly on facts & reason, so there's a fundamental disconnect between the two views which is going to make any fruitful discussion impossible.

----------


## Paul Or Nothing II

> This is correct. I do believe that I have more of a right to my home than you. And I expect the State laws to back me up on that if I must use force to remove an unwanted intruder.
> 
> I agree with Mises and Ron Paul and I disagree with Rothbard on that.


Ok, so you don't believe in equality of rights! And how ironic that you'd like to invade other countries that trample on their people's rights! 

You believe that there should be two classes of people :
1) Master Class, comprising of people in government, who can rob & coerce others
2) Slaves, comprising of rest of the sub-humans, who will be robbed & coerced

Even more ironic that you justify the War of Northern Aggression under the pretext of ending slavery!

----------


## Travlyr

> It's not about what's "right" or "wrong" but whether someone is using coercion or not, of course, there may be different views on "right" or "wrong", for example, it may be considered "wrong" for someone to let a child starve but since there's no coercion, the parent(s) can't be held responsible.
> 
> Each person can only be held responsible for his own coercive actions & not of someone else's, so long as hitman is free to make a choice, only he can be held responsible; the crime mayn't even occur if he refused to do it because obviously his client doesn't want to get his hands dirty. There may be different views on this but having things any other way can make things far too arbitrary.
> 
> Again, you're too much into conspiracy-theories & therefore unwilling to look at facts such as the magnitude of benefits to government & that banks don't get any "free money" as is assumed while I prefer to rely strictly on facts & reason, so there's a fundamental disconnect between the two views which is going to make any fruitful discussion impossible.


Do you understand that money can not be created out-of-nothing? Currency can but money must be earned. Money is a tangible good that is mined, grown, or sewn.

----------


## Travlyr

> Ok, so you don't believe in equality of rights! And how ironic that you'd like to invade other countries that trample on their people's rights! 
> 
> You believe that there should be two classes of people :
> 1) Master Class, comprising of people in government, who can rob & coerce others
> 2) Slaves, comprising of rest of the sub-humans, who will be robbed & coerced
> 
> Even more ironic that you justify the War of Northern Aggression under the pretext of ending slavery!


Where do you come up with these crazy conspiracy theories? Why are you making stuff up about what I believe. People can read for themselves. The world doesn't need you telling them what I think. You are distorting what I write.

----------


## Paul Or Nothing II

> Where do you come up with these crazy conspiracy theories? Why are you making stuff up about what I believe. People can read for themselves. The world doesn't need you telling them what I think. You are distorting what I write.


Well, you support existence of coercive government, which obviously means following :




> Ok, so you don't believe in equality of rights! And how ironic that you'd like to invade other countries that trample on their people's rights! 
> 
> You believe that there should be two classes of people :
> 1) Master Class, comprising of people in government, who can rob & coerce others
> 2) Slaves, comprising of rest of the sub-humans, who will be robbed & coerced
> 
> Even more ironic that you justify the War of Northern Aggression under the pretext of ending slavery!

----------


## Travlyr

> Well, you support existence of coercive government, which obviously means following :


Do you think you have equal right to my home? 
Or do I have more right to my home than you? 
Do you have more right to your home than I?

What do you believe?

----------


## Travlyr

> Do you think you have equal right to my home? 
> Or do I have more right to my home than you? 
> Do you have more right to your home than I?
> 
> What do you believe?


Crickets.

----------


## TheTexan

> It's not about what's "right" or "wrong" but whether someone is using coercion or not, of course, there may be different views on "right" or "wrong", for example, it may be considered "wrong" for someone to let a child starve but since there's no coercion, the parent(s) can't be held responsible.
> 
> Each person can only be held responsible for his own coercive actions & not of someone else's, so long as hitman is free to make a choice, only he can be held responsible; the crime mayn't even occur if he refused to do it because obviously his client doesn't want to get his hands dirty. There may be different views on this but having things any other way can make things far too arbitrary.


Hiring a hitman is an act of aggression.  Period.  I'm not going to get into an extended debate on this subject, because its really quite silly.  The idea that "its not aggression unless you yourself pull the trigger" has more holes in it than a cheese grater.  It doesn't hold up to reality, because you are in effect endorsing the right to hire people to kill others for money, which clearly conflicts with the vast majority of people's concept of natural law.  Furthermore, just as a handgun is but a tool, so is a hitman.  The person commissioning the hitman has coercive intent, and is simply using a different tool to complete the act.  The only difference is that there are now two parties at blame for the murder than just one.

The bottom line is the idea that a person who hires a hitman is "wrong" but shouldn't be held responsible is an outlandishly oversimplified misunderstanding of the NAP.  You're probably just trying to justify your apologies of the bankers, but if you do actually really believe this, I'd prefer not to discuss this aspect further.  It's not worth my time, so if you disagree on this, then please just agree to disagree and move on, because you will never convince me that hiring a hitman is non-coercive.




> Again, you're too much into conspiracy-theories & therefore unwilling to look at facts such as the magnitude of benefits to government & that banks don't get any "free money" as is assumed while I prefer to rely strictly on facts & reason, so there's a fundamental disconnect between the two views which is going to make any fruitful discussion impossible.


The politicians are criminals too.  And I would like to see them held accountable for their crimes, just as much as the bankers.  *The crimes of the politicians does not exculpate the crimes of the bankers.*  They are both responsible for the crimes of the Fed.

I've already proven that the banks make more profit with the Fed than without it.  How much profit, can't be proven, but based on the available evidence and the strong correlation between money printed, and bankers profits... I'd say, *A LOT*.

You're just proving that you're a mindless apologist by calling that a "conspiracy theory"

----------


## Paul Or Nothing II

> Do you think you have equal right to my home? 
> Or do I have more right to my home than you? 
> Do you have more right to your home than I?
> 
> What do you believe?


As anyone who has ever argued with you will agree, you're quite the master of diversion & intellectual dishonesty. But nonetheless, just for the heck of it, I'll answer the 3 questions :

No
Yes
Yes

Ok, so that random nonsense is out of the way - here's the point again - you support government robbing & coercing people, which automatically entails that you believe that people in government should have more rights than rest of the people, that is NOT equality at all, in fact, it's like slavery.

Clearly, you don't believe in all people having equal rights to their life, liberty & property!

----------


## Travlyr

> As anyone who has ever argued with you will agree, you're quite the master of diversion & intellectual dishonesty. But nonetheless, just for the heck of it, I'll answer the 3 questions :
> 
> No
> Yes
> Yes
> 
> Ok, so that random nonsense is out of the way - here's the point again - you support government robbing & coercing people, which automatically entails that you believe that people in government should have more rights than rest of the people, that is NOT equality at all, in fact, it's like slavery.
> 
> Clearly, you don't believe in all people having equal rights to their life, liberty & property!


Why are you still telling people what I believe. Clearly, your understanding of what I believe is wrong. I subscribe to classical liberal philosophy as described by Ludwig von Mises.

It is amazing to me the number of people on this forum who can not understand the proper role of government. Read Mises, "Liberalism, State and Government"




> "The program of liberalism, therefore, if condensed into a single word, would have to read: property, that is, private ownership of the means of production... All the other demands of liberalism result from his fundamental demand."


Private ownership of the means of production not the private ownership of everything in the world. 

I do not support government robbing people. I want the counterfeiting to stop ASAP. End the Fed tomorrow by legalizing competing currencies.

I also do not see all taxation as theft. I understand some taxes are fees for services. I do agree with Mises. What really baffles me is the number of people who read LvMI and disagree with Mises himself. I believe, like Mises, that a state is a necessary good in which to provide law administered by government officials. 




> We call the social apparatus of compulsion and coercion that induces people to abide by the rules of life in society, *the state*; the rules according to which the state proceeds, *law*; and the organs charged with the responsibility of administering the apparatus of compulsion, *government.*

----------


## Paul Or Nothing II

> Hiring a hitman is an act of aggression.  Period.  I'm not going to get into an extended debate on this subject, because its really quite silly.  The idea that "its not aggression unless you yourself pull the trigger" has more holes in it than a cheese grater.  It doesn't hold up to reality, because you are in effect endorsing the right to hire people to kill others for money, which clearly conflicts with the vast majority of people's concept of natural law.  Furthermore, just as a handgun is but a tool, so is a hitman.  The person commissioning the hitman has coercive intent, and is simply using a different tool to complete the act.  The only difference is that there are now two parties at blame for the murder than just one.
> 
> The bottom line is the idea that a person who hires a hitman is "wrong" but shouldn't be held responsible is an outlandishly oversimplified misunderstanding of the NAP.  You're probably just trying to justify your apologies of the bankers, but if you do actually really believe this, I'd prefer not to discuss this aspect further.  It's not worth my time, so if you disagree on this, then please just agree to disagree and move on, because you will never convince me that hiring a hitman is non-coercive.


In fact, defining coercion upon "intent" is a big blackhole, it's a pandora's box of its own. Let's go back to the parents starving their children, again, are they obligated to feed them? Is anyone obligated to feed anyone? No. The "intent" in this case is obvious, it's going to lead to children's death but does that mean the parents are using coercion? No.
Let's say a Christian priest desecrates Qur'an or photo of Mohammed or whatever with an "intent" to incite Muslims & demonstrate their violent nature, then some Muslims riot, vandalize & let's say kill some Christians, did the Christian priest commit coercion upon anyone? No.

As I've said, once you start trying to criminalize people based on "intent", it's going to lead to all kinds of scenarios where arbitrary judgments are going to be have to be made & people are going to disagree quite a bit & all you're going to end up with is crappy laws, words of which can be manipulated more wildly by lawyers, good for lawyers, good for their criminal-clients, bad for the society as a whole.
That's why it's important to keep laws simple & solid, so that they can't be wildly manipulated - if a person commits an act that's not voluntary, then it's not justifiable.

Further, there may be People-A (let's say like the person hiring the hitman) & People-B (like the hitman) - now, the incidence of crime is going to be higher in a society where both types of people exist compared to a society where People-B don't exist.
Somebody may want someone else killed but the mere "intent" itself is never sufficient to kill, it requires people willing to use direct coercion (like People-B), if nobody is willing to use coercion & kill then nobody dies no matter how much someone wants to kill somebody else, so given that he has a free choice, only the hitman can be said to engage in an unjustifiable, involuntary, coercive act.

As for trying to convince, I'd not try to convince any conspiracy-theorist because their views rely heavily on their imaginary world full of conspiracies, where anyone with a different view on things & anyone who doesn't share their delusions is immediately considered to be the part of the conspiracy, a "banker-apologist" or "disinformation-agent" or whatever. They have trouble being objective about things so the only way they are going to come around on any issue is if they somehow develop a more objective approach of looking at things but that realization has to come from inside, nobody can convince them of that.




> The politicians are criminals too.  And I would like to see them held accountable for their crimes, just as much as the bankers.  *The crimes of the politicians does not exculpate the crimes of the bankers.*  They are both responsible for the crimes of the Fed.


It's not a question of exculpating the government so much but it's the act of inculpating the private non-coercive actors that leads people in general (may be not you personally) to adopt a mentality that _"all we've to do is disentangle the private influence within the government & government won't misuse it's coercive powers"_. Travlyr is a typical example of this, where he believes that _"if only the government was decoupled from 'evil bankers' then government will be nice despite its coercive powers"_. Then there are the typical socialists who also think government will be great if we could just weed that the evil private influence, again, not realizing that the private influence exists only to benefit off of government's coercive powers!
In order to sidestep such delusions, it's important to be specific about the root of the problem, & that must be the coercive powers of the government, because blaming non-coercive private actors causes most people to disregard the root of the problem & they continue to engage in socialist fantasies of various kinds.




> I've already proven that the banks make more profit with the Fed than without it.  How much profit, can't be proven, but based on the available evidence and the strong correlation between money printed, and bankers profits... I'd say, *A LOT*.
> 
> You're just proving that you're a mindless apologist by calling that a "conspiracy theory"


No, you haven't proven anything, if it's about the PDs then here's the thing, whether Fed exists or not, PDs would still exist so long as government values their participation because as I've repeatedly pointed out, PDs are there to keep the markets liquid & spreads low, which allows the government to maximize its revenues from selling Treasuries/debt. So even if Fed were shut down tomorrow, PDs would likely continue to exist so your assumption that bankers support Fed to preserve their profits on PD-business is utterly fallacious.

And calling me "banker apologist" or whatever doesn't change anything about facts & facts are that you don't understand how the Fed works, you seem unable to grasp the magnitude of monetary benefit extracted by the government because of the Fed, you won't even bother to learn history & realize that governments have always tried to control issue of money & current times are no different. The only thing you "know" is the typical OWS approach that bankers are evil because they are making lots of money in ways that you can't comprehend so all those videos & articles out there saying that "bankers are evil" must be true

----------


## Jordan

Why modest inflation? Because the economy is only just beginning to recover. Inflation will become a concern only if and when the economy brings it on 1999 style. Personally, I'm ready to party like it's 1999.

Also, the Fed's policies are not nearly as inflationary as some believe.

----------


## Travlyr

> It's not a question of exculpating the government so much but it's the act of inculpating the private non-coercive actors that leads people in general (may be not you personally) to adopt a mentality that _"all we've to do is disentangle the private influence within the government & government won't misuse it's coercive powers"_. *Travlyr is a typical example of this, where he believes that "if only the government was decoupled from 'evil bankers' then government will be nice despite its coercive powers"*.


Your reading skills are horrible dude, and your writing skills are deceitful. Why are you writing false crap about me? That's bull$#@!. Why are you telling people what I believe when you don't have a frikken clue?

I know that psychopaths gravitate toward government power no matter what. I also know that when enough people understand how the Federal Reserve System is stealing most of our individual wealth, then the counterfeiters will go the way of the dinosaur, and government will shrink to little of nothing because they will starve.

----------


## Paul Or Nothing II

> I also do not see all taxation as theft. I understand some taxes are fees for services.


All taxation is by definition theft/robbery as it is extracted forcibly from people, there's no choice, something that anybody who believes in equal rights won't find justifiable.
And taxation & user fees aren't always the same, taxation is coercive & extracted arbitrarily irrespective of whether a service was used or not, irrespective of the extent of the usage while user fees mayn't be so.

Besides, you support conscription, which is coercive & a form of slavery!

Anybody that truly supports freedom & believes in everyone having equal rights to life, liberty & property so they'll will ONLY support VOLUNTARY ACTION, no coercion of any kind because that would violate the principle of equal rights - & this doesn't seem to be the case with you!




> I do agree with Mises. What really baffles me is the number of people who read LvMI and disagree with Mises himself. I believe, like Mises, that a state is a necessary good in which to provide law administered by government officials.


Why is everyone obligated to agree with Mises or Ron or anyone? They aren't. People can have different opinions, if Mises was a minarchist then that doesn't mean everybody here must be a minarchist, just because Ron is a Christian doesn't mean everybody here must be a Christian....

Besides, it seems Mises believed in micro-secession & you don't seem to, so why do you disagree with Mises?

----------


## Travlyr

> All taxation is by definition theft/robbery as it is extracted forcibly from people, there's no choice, something that anybody who believes in equal rights won't find justifiable.
> And taxation & user fees aren't always the same, taxation is coercive & extracted arbitrarily irrespective of whether a service was used or not, irrespective of the extent of the usage while user fees mayn't be so.
> 
> Besides, you support conscription, which is coercive & a form of slavery!
> 
> Anybody that truly supports freedom & believes in everyone having equal rights to life, liberty & property so they'll will ONLY support VOLUNTARY ACTION, no coercion of any kind because that would violate the principle of equal rights - & this doesn't seem to be the case with you!
> 
> 
> 
> ...


You have horrible reading skills. You still have no clue what I believe yet you are quite willing to tell others.

----------


## TheTexan

> In fact, defining coercion upon "intent" is a big blackhole, it's a pandora's box of its own. Let's go back to the parents starving their children, again, are they obligated to feed them? Is anyone obligated to feed anyone? No. The "intent" in this case is obvious, it's going to lead to children's death but does that mean the parents are using coercion? No.
> Let's say a Christian priest desecrates Qur'an or photo of Mohammed or whatever with an "intent" to incite Muslims & demonstrate their violent nature, then some Muslims riot, vandalize & let's say kill some Christians, did the Christian priest commit coercion upon anyone? No.
> 
> As I've said, once you start trying to criminalize people based on "intent", it's going to lead to all kinds of scenarios where arbitrary judgments are going to be have to be made & people are going to disagree quite a bit & all you're going to end up with is crappy laws, words of which can be manipulated more wildly by lawyers, good for lawyers, good for their criminal-clients, bad for the society as a whole.
> That's why it's important to keep laws simple & solid, so that they can't be wildly manipulated - if a person commits an act that's not voluntary, then it's not justifiable.
> 
> Further, there may be People-A (let's say like the person hiring the hitman) & People-B (like the hitman) - now, the incidence of crime is going to be higher in a society where both types of people exist compared to a society where People-B don't exist.
> Somebody may want someone else killed but the mere "intent" itself is never sufficient to kill, it requires people willing to use direct coercion (like People-B), if nobody is willing to use coercion & kill then nobody dies no matter how much someone wants to kill somebody else, so given that he has a free choice, only the hitman can be said to engage in an unjustifiable, involuntary, coercive act.


Pulling a trigger = coercive intent.  Telling another to pull a trigger = coercive intent.  Intentionally withholding food = intentionally withholding food.  One is an active attack on another, and the other is passive non-action.  It's apples and oranges.

Again, this idea that the person that hires the hitman isn't morally accountable has more holes than a cheese grater.  You can write another small novel on it if you like, but doesn't change this fact.




> As for trying to convince, I'd not try to convince any conspiracy-theorist because their views rely heavily on their imaginary world full of conspiracies, where anyone with a different view on things & anyone who doesn't share their delusions is immediately considered to be the part of the conspiracy, a "banker-apologist" or "disinformation-agent" or whatever. They have trouble being objective about things so the only way they are going to come around on any issue is if they somehow develop a more objective approach of looking at things but that realization has to come from inside, nobody can convince them of that.


Ah, the classic "conspiracy-theorist" card.  The go-to argument when you have nothing constructive to say and simply wish to discredit via personal attacks.




> It's not a question of exculpating the government so much but it's the act of inculpating the private non-coercive actors that leads people in general (may be not you personally) to adopt a mentality that _"all we've to do is disentangle the private influence within the government & government won't misuse it's coercive powers"_. Travlyr is a typical example of this, where he believes that _"if only the government was decoupled from 'evil bankers' then government will be nice despite its coercive powers"_. Then there are the typical socialists who also think government will be great if we could just weed that the evil private influence, again, not realizing that the private influence exists only to benefit off of government's coercive powers!
> In order to sidestep such delusions, it's important to be specific about the root of the problem, & that must be the coercive powers of the government, because blaming non-coercive private actors causes most people to disregard the root of the problem & they continue to engage in socialist fantasies of various kinds.
> 
> *No, you haven't proven anything*, if it's about the PDs then here's the thing, whether Fed exists or not, PDs would still exist so long as government values their participation because as I've repeatedly pointed out, PDs are there to keep the markets liquid & spreads low, which allows the government to maximize its revenues from selling Treasuries/debt. So even if Fed were shut down tomorrow, PDs would likely continue to exist so your assumption that bankers support Fed to preserve their profits on PD-business is utterly fallacious.
> 
> And calling me "banker apologist" or whatever doesn't change anything about facts & facts are that you don't understand how the Fed works, you seem unable to grasp the magnitude of monetary benefit extracted by the government because of the Fed, you won't even bother to learn history & realize that governments have always tried to control issue of money & current times are no different. The only thing you "know" is the typical OWS approach that bankers are evil because they are making lots of money in ways that you can't comprehend so all those videos & articles out there saying that "bankers are evil" must be true


I haven't proven that the bankers make more money with the Fed than without it?  Just how dense are you?  a) It's simple economics, b) I posted it earlier, c) you still haven't addressed it - at all.




> Banking is even more (a lot more) profitable when you have a best friend with a printing press who's singular purpose in life is to buy your $#@!.  Tends to make things easier.
> 
> *The Federal Reserve buys things.*  Based on $#@!ING BASIC economic principles,* that means they bought the product at a price that noone else was able and willing to pay at that time.  It follows then, this also means that they gave the person they bought the product from more money than that person would have received otherwise.  Again, this is economic FACT.*  Very $#@!ing basic fact, at that.
> 
> Additionally, they buy these products from a select group of people; namely BANKERS.  In VAST quantities.
> 
> This is 100% proof that the bankers do profit from this arrangement.  How much is the only question, and there is no way to measure this.  You can speculate based on available evidence (such as the correlation between money printed and profits), but the actual quantity cannot be mathematically proved.


It's proven they make more money with the Fed than without it.  Your denial of this simple economic fact speaks volumes.

The bankers, out of their own personal greed and avarice, have contracted the government into building and maintaining a monetary system designed to steal from me, and give it to bankers and politicians.  They lie through their teeth to protect the system for their own wealth, and show zero concern for the monstrous tyrannical government they have built with the system they created.

Your denial of this, again, speaks *volumes*.

----------


## Travlyr

> I haven't proven that the bankers make more money with the Fed than without it?  Just how dense are you?  a) It's simple economics, b) I posted it earlier, c) you still haven't addressed it - at all.
> 
> It's proven they make more money with the Fed than without it.  Your denial of this simple economic fact speaks volumes.
> 
> The bankers, out of their own personal greed and avarice, have contracted the government into building and maintaining a monetary system designed to steal from me, and give it to bankers and politicians.  They lie to their teeth to protect the system for their own wealth, and show zero concern for the monstrous tyrannical government they have built with the system they created.
> 
> Your denial of this, again, speaks *volumes*.


Speaks Volumes.




> "In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights." - Alan Greenspan, Gold and Economic Freedom
> 
> "The Federal Reserve banks are one of the most corrupt institutions the world has ever seen. There is not a man within the sound of my voice who does not know that this nation is run by the International bankers." - Congressman Louis T. McFadden (Rep. Pa)
> 
> "The few who understand the system, will either be so interested in its profits, or so dependent on it's favors, that there will be no opposition from either class." - Rothschild Brothers of London, 1863
> 
>  "Our goal is gradually to absorb the wealth of the world." - Cecil Rhodes, "The secret banking cabal"

----------


## Henry Rogue

> Also, the Fed's policies are not nearly as inflationary as some believe.


 Care to elaborate? Do you mean monetary inflation or price inflation? Does the first eventually result in the second?

----------


## Paul Or Nothing II

> You have horrible reading skills. You still have no clue what I believe yet you are quite willing to tell others.


I don't think anybody is so naive to not realize what you believe.

You have yourself admitted that you support taxes (robbing people) & you support conscription (coercion), which automatically means that you don't believe in equal rights for all people but instead a system where people in government have more rights than rest of the people.

You can keep pretending that you are for freedom but you aren't, you just want "your version of freedom" just like socialists want "their version of freedom", not equal freedom for everyone!

----------


## Travlyr

> I don't think anybody is so naive to not realize what you believe.
> 
> You have yourself admitted that you support taxes (robbing people) & you support conscription (coercion), which automatically means that you don't believe in equal rights for all people but instead a system where people in government have more rights than rest of the people.
> 
> You can keep pretending that you are for freedom but you aren't, you just want "your version of freedom" just like socialists want "their version of freedom", not equal freedom for everyone!


Your reading comprehension fails you miserably. I 100% agree with Ron Paul. I've read much of what he has written and I have watched many hours of his videos. My positions are completely in line with Ron Paul's position as he has articulated them. I believe that Ron Paul will go down in history as the greatest defender of liberty of our time. If you don't agree with Ron Paul, then that is fine with me, I seriously don't care. Just stop spreading lies about me and my positions. 

Pillars of Prosperity: Free Markets, Honest Money, Private Property.

----------


## Paul Or Nothing II

> Pulling a trigger = coercive intent.  Telling another to pull a trigger = coercive intent.  Intentionally withholding food = intentionally withholding food.  One is an active attack on another, and the other is passive non-action.  It's apples and oranges.


There is intent to kill in both instances & yet your verdict varies, that in itself proves my point that taking on such a stance is going to lead to a lot of disagreements amongst people & thousands of pages worth of legal code, which will eventually only stand to make lawyers richer & free more criminals.
Besides, if only hitman is held liable then there will be less incentive for his (likely rich) client to work towards getting a good lawyer & free him, which leaves a higher chance of having the actual coercive people getting convicted, & carrying on from my illustration in the previous post, the less "People-B" are out there, the less crime there will be irrespective of how many "People-A" are there.
Clearly, you haven't thought things through......but then you don't seem to have thought things through on other issues either.....
Nonetheless, as I've said, your judgment is very much clouded by conspiracy-theories so I won't argue.




> I haven't proven that the bankers make more money with the Fed than without it?  Just how dense are you?  a) It's simple economics, b) I posted it earlier, c) you still haven't addressed it - at all.


And I've also pointed out in my previous posts that until the recent crisis, Fed hadn't benefitted banks in such ways & to such an extent.
So your basic argument is that bankers created Fed in 1913 & waited for almost a hundred years before extracting benefits from the system???? Really??? 
Clearly shows again that your views are based solely on conspiracy-theories rather than facts, reason & objectivity.

Or wait, let me guess, bankers are actually shape-shifting lizards who live for thousands or millions of years so they don't mind waiting a 100 or so!!! 

Fed didn't buy up all those bad assets because they want to benefit the banks, they did so out of fear of further collapse of banks leading to worsening of the economy, further, it's also a way for Bernanke to try & drive down rates & thereby try to re-infate the bubble. But again, you don't seem to understand these things so good luck with conspiracies, lizards & everything.




> It's proven they make more money with the Fed than without it.  Your denial of this simple economic fact speaks volumes.
> 
> The bankers, out of their own personal greed and avarice, have contracted the government into building and maintaining a monetary system designed to steal from me, and give it to bankers and politicians.  They lie through their teeth to protect the system for their own wealth, and show zero concern for the monstrous tyrannical government they have built with the system they created.
> 
> Your denial of this, again, speaks *volumes*.


Again, you don't understand how Fed works, what motivates them to do the things they do, how the government extracts enormous wealth through the economy through Fed, you can't even grasp the history of money that governments have always tried to control issuance of money & this system is no different.......you just can't grasp things so it seems palatable to believe fancy conspiracy-theories, researching & learning facts objectively is too much work I suppose

----------


## TheTexan

> And I've also pointed out in my previous posts that until the recent crisis, Fed hadn't benefitted banks in such ways & to such an extent.


Yes, because the laws of supply and demand are a relatively new invention.

All you're doing now is resorting to personal attacks, strawmen, and red herrings.  I'm done arguing with you PON II.

It is pretty funny watching you try to struggle to defend the crimes of the bankers though.

----------


## Paul Or Nothing II

> Your reading comprehension fails you miserably. I 100% agree with Ron Paul. I've read much of what he has written and I have watched many hours of his videos. My positions are completely in line with Ron Paul's position as he has articulated them. I believe that Ron Paul will go down in history as the greatest defender of liberty of our time. If you don't agree with Ron Paul, then that is fine with me, I seriously don't care. Just stop spreading lies about me and my positions. 
> 
> Pillars of Prosperity: Free Markets, Honest Money, Private Property.


It's really funny how hard you are trying to convince yourself that you're for liberty & equality, even though you're not!

As for reading comprehension goes, well, may be you should look at yours more closely, as I've repeatedly pointed out why you are against freedom & equality & yet you just can't seem to connect the dots (or are pretending not to be able to connect them out of fear of realization that you're in fact against liberty & equality)

I don't know what "lies" I've posted but may be you have a different definition of what constitutes a "lie" since you seem to have your own weird definitions for "freedom" & "equality" 

Nonetheless, I'll point it out again, may be this time you'll be able to connect the dots -
Ok, so you have admitted that you support taxation which equals supporting robbery, you support conscription which equals supporting coercion & slavery, it means that you believe that people in government have more rights than the rest, which means you support a class-structure where people in government are masters while rest of people are their slaves!

----------


## Paul Or Nothing II

> Yes, because the laws of supply and demand are a relatively new invention.
> 
> All you're doing now is resorting to personal attacks, strawmen, and red herrings.  I'm done arguing with you PON II.
> 
> It is pretty funny watching you try to struggle to defend the crimes of the bankers though.


Really??? So that's your contention???? Pretty pathetic it must be said 

It's really funny how conspiracy-theorists try to find things to justify their ill-conceived beliefs, & every time a mirror is shattered they try to find a new fake one that will tell them what they believe to be true.
First, the conspiracy-theorists, convinced that bankers are the cause of every problem in the world, claim that "evil bankers" receive interest from government on the money they create, when that nonsense was proven to be false, conspiracy-theorists claim that "evil bankers" are earning excessively through PD-system & that's why they support Fed, after it's pointed that existence of PDs isn't dependent upon existence of Fed, conspiracy-theorists claim that "evil bankers" are benefitting through Fed buying up their bad assets, after it's pointed out that that has never been the norm for a century since Fed's inception, then, conspiracy-theorists don't know whether to run or to hide! 

Nonetheless, thanks for all the laughs you've provided, I hope that some day you'll learn the good sense to base your views on facts, reason & objectivity, & not on fancy, speculative hypotheses born out of the minds of some internet-nobodies, who can't be bothered with facts & reality! Good luck!

----------


## Travlyr

> It's really funny how hard you are trying to convince yourself that you're for liberty & equality, even though you're not!
> 
> As for reading comprehension goes, well, may be you should look at yours more closely, as I've repeatedly pointed out why you are against freedom & equality & yet you just can't seem to connect the dots (or are pretending not to be able to connect them out of fear of realization that you're in fact against liberty & equality)
> 
> I don't know what "lies" I've posted but may be you have a different definition of what constitutes a "lie" since you seem to have your own weird definitions for "freedom" & "equality" 
> 
> Nonetheless, I'll point it out again, may be this time you'll be able to connect the dots -
> Ok, so you have admitted that you support taxation which equals supporting robbery, you support conscription which equals supporting coercion & slavery, it means that you believe that people in government have more rights than the rest, which means you support a class-structure where people in government are masters while rest of people are their slaves!


lolz... Well PONII if it weren't for you telling me what I believe then I wouldn't believe anything at all. It is rather dumb to keep lying about me. Everyone else on the forum can read dude. We all know you are simply a shill for the evil bankers.

----------


## TheTexan

> lolz... Well PONII if it weren't for you telling me what I believe then I wouldn't believe anything at all. It is rather dumb to keep lying about me. Everyone else on the forum can read dude.


That's all he's done for this entire thread.  Lies, personal attacks, and strawmen.




> We all know you are simply a shill for the evil bankers.


The bankers aren't evil you're just a conspiracy theorist!  (<--  the gist of his "argument")

----------


## Travlyr

> That's all he's done for this entire thread.  Lies, personal attacks, and strawmen.
> 
> The bankers aren't evil you're just a conspiracy theorist!  (<--  the gist of his "argument")


Yeah, and he rates equality right up there with liberty just like a good socialist banker shill would do.

----------


## Paul Or Nothing II

> lolz... Well PONII if it weren't for you telling me what I believe then I wouldn't believe anything at all. It is rather dumb to keep lying about me. Everyone else on the forum can read dude. We all know you are simply a shill for the evil bankers.


Again, you believe it's ok for government to rob (tax) & coerce (conscript) people, that clearly means you're against freedom & equality for all. Denying it doesn't change facts!

----------


## Paul Or Nothing II

> That's all he's done for this entire thread.  Lies, personal attacks, and strawmen.
> 
> 
> 
> The bankers aren't evil you're just a conspiracy theorist!  (<--  the gist of his "argument")


Oh really? In fact, I've provided clear arguments that completely shatter your conspiracy-theories about Fed & banking, that's why you're having to tuck your tail and run!

And I've never said bankers aren't evil or anything, bankers are a diverse group of individuals, I don't know all of them so I can't paint them with any kind broad brush - all I've tried is to point out that in the light of facts & reason (as opposed to fancy conspiracy-theories), it CAN'T be said that Fed was created primarily to benefit the bankers, it was NOT, it was created primarily to benefit the government & anyone who's willing to learn & research facts, can clearly see for themselves that government has been & is the largest beneficiary of Fed's money-creation, not banks.

But again, if some people are immune to facts & reason, & instead like to revel in fancy conspiracy-theories then there's not much that can be done to help them!

----------


## TheTexan

> Oh really? In fact, I've provided clear arguments that completely shatter your conspiracy-theories about Fed & banking, that's why you're having to tuck your tail and run!


You've done no such thing.  You've made no new points in... maybe, 5-6 pages.  You're just rehashing old points that I've already addressed, going in circles and adding personal attacks.

It's a waste of time.

----------


## W_BRANDON

Part of it has to do with technological advances, economies of scale, and other measures used to lower the cost of goods sold. Manufacturing is getting leaner and cheaper labor is being drafted.

----------


## Paul Or Nothing II

> You've done no such thing.  You've made no new points in... maybe, 5-6 pages.  You're just rehashing old points that I've already addressed, going in circles and adding personal attacks.
> 
> It's a waste of time.


Your intellectual dishonesty is appalling!

To the contrary, I've refuted each and every one of the baseless arguments you conspiracy-theorists make :

1) That government "pays" interest to Fed on the money Fed creates to buy government-debt - WRONG, Fed not only hands over the interest government has "paid" but much more than that BACK to the government.
Once the above is debunked you people say -
2) Banks created & support Fed because of the money they make thru PD system - WRONG, PD system will likely continue to exists whether Fed exists or not because it will continue to help Treasury maximize its revenue from debt.
When the above was debunked you say -
3) Look at all the bad assets Fed bought from banks, that's how they benefit from Fed - WRONG, because Fed was created in 1913 & until the 2008 crisis, Fed had never bought bad assets from banks in a way that would benefit them & it would be childish to think that banks created Fed in 1913 & waited nearly a century to extract monetary benefit out of the system.
And even the whatever was bought in 2008 was to prevent banking collapse which government fears very much as well as to try to keep the housing-bubble afloat & to re-inflate it.

I've explained in detail the enormous monetary benefit the government rakes in due to Fed but because you're blinded by conspiracy-theories about banking, you conveniently ignore facts & reason.

My original contention in this thread was against your belief that all the money-creation Fed engages in benefits the banks & I've explained why it is NOT the case, & anyone who's willing to check facts will find that to be true, & will also realize that it's the government that extracts enormous monetary benefit from the economy thru Federal Reserve System.




> Another factor might be productivity.  Instead of enjoying lower costs, any benefit from productivty is inflated away.  We might make and distribute bread 10% more efficiently over a period of time, but inflation can wipe that out and result in a "modest" 5% price increase.  The actual price increase, if adjusted for inflation, would be higher - like 15%.
> 
> 
> 
> 
> 
>  Originally Posted by bxm042
> 
> 
> ...

----------


## FSP-Rebel

Glad I didn't get in on this one on the ground floor.

----------


## TheTexan

> 3) Look at all the bad assets Fed bought from banks, that's how they benefit from Fed - WRONG, because Fed was created in 1913 & until the 2008 crisis, Fed had never bought bad assets from banks in a way that would benefit them & it would be childish to think that banks created Fed in 1913 & waited nearly a century to extract monetary benefit out of the system.


Bad assets or not, they still profit from the Fed.  I've already explained this several times, it's simple supply and demand.  The Fed buys products at a price that noone else is willing and able to buy at that time.  Focusing on just the "bad assets" instead of just "assets" is just one of the countless strawmen you like to use.

The other arguments in your post is just more red herrings.  As usual.  I fully expect you to write another novel in response to this full with more strawmen and red herrings.

For example..




> 1) That government "pays" interest to Fed on the money Fed creates to buy government-debt - WRONG, Fed not only hands over the interest government has "paid" but much more than that BACK to the government.


I never made this claim, yet you seem to be implying I did.  You're also implying that I didn't already know this.  That's your game, here.  Keep telling people that they just don't understand, that they don't know how the Fed works.  Not sure what logical fallacy that is, but I'm sure there's a name for it

----------


## Paul Or Nothing II

> Bad assets or not, they still profit from the Fed.  I've already explained this several times, it's simple supply and demand.  The Fed buys products at a price that noone else is willing and able to buy at that time.  Focusing on just the "bad assets" instead of just "assets" is just one of the countless strawmen you like to use.
> 
> The other arguments in your post is just more red herrings.  As usual.  I fully expect you to write another novel in response to this full with more strawmen and red herrings.


Interesting new conspiracy-theory! Could you specify what these "assets" are that you're referring Fed always buys to benefit banks? Oh no, that would be too difficult, would it? 

As I've said, you or anyone else can go through the history of what Fed has bought & facts will bear themselves out that before 2008 crisis, Fed didn't engage in buying up _"assets that noone else is willing to buy"_ in a way that would bring in significant monetary benefit that could be correlated to inflation.

But again, you have nothing to do with facts & reason so I fully expect another nonsense response pretending that the conspiracy-theories you believe in are true even though facts & reason say something totally different!

P.S. You say I focus on _"bad assets"_ while it seems you wish I'd focus on _"assets noone else is willing to buy"_ but here's the thing, assets that noone wants to buy (at a high price anyway) are what people call bad assets  but again, logic isn't something that can be expected from conspiracy-theorists! Oh no!

----------


## TheTexan

> Interesting new conspiracy-theory! Could you specify what these "assets" are that you're referring Fed always buys to benefit banks? Oh no, that would be too difficult, would it? 
> 
> As I've said, you or anyone else can go through the history of what Fed has bought & facts will bear themselves out that before 2008 crisis, Fed didn't engage in buying up _"assets that noone else is willing to buy"_ in a way that would bring in significant monetary benefit that could be correlated to inflation.
> 
> But again, you have nothing to do with facts & reason so I fully expect another nonsense response pretending that the conspiracy-theories you believe in are true even though facts & reason say something totally different!
> 
> P.S. You say I focus on _"bad assets"_ while it seems you wish I'd focus on _"assets noone else is willing to buy"_ but here's the thing, assets that noone wants to buy (at a high price anyway) are what people call bad assets  but again, logic isn't something that can be expected from conspiracy-theorists! Oh no!


It's basic economics.  You should know this.

10 people attend an art auction.  1 of them, named Bernie, is a counterfeiter, who's job is to buy paintings.  1 of them, named Joe, really, really likes Botticelli.

A Botticelli piece goes up for bid.  Joe is willing to pay up to $600,000 for the piece.  The other 8 people are willing to pay only $200,000 for the piece.

Without the counterfeiter, Joe would win the auction at $201,000.  With the counterfeiter, Bernie would win the auction at $601,000.

That's an extra $400,000 in the pocket for anyone who sold that Botticelli.

I think it's hilarious that you call this basic economic principle of supply and demand a "conspiracy theory."

You also have zero evidence that there is no significant monetary benefit from this process.  All (well, nearly all) money enters the system through this process, and considering the amount of money in circulation, it's very foolish to say it's not a factor.  The recent years have only reinforced this, by providing solid evidence of a correlation between money printed and banker profits.  This has been going on for a very, very long time.  The only difference is now, it is ridiculously obvious.




> Interesting new conspiracy-theory!


New?  I posted this like 20 pages ago.  This is solid *proof* they make more money with the Fed than without it, but you have repeatedly stated they do not.  The Law of Supply and Demand obviously disagrees with you... but I guess that's just a conspiracy theory, right? 

Law of Supply and demand = Conspiracy theory.... you crack me up, man.

----------


## Zippyjuan

> Bad assets or not, they still profit from the Fed.  I've already explained this several times, it's simple supply and demand.  The Fed buys products at a price that noone else is willing and able to buy at that time.  Focusing on just the "bad assets" instead of just "assets" is just one of the countless strawmen you like to use.


The Fed purchases their assets via a competitive bidding process.  They say how much they want to buy (say $10 million in US Treasuries) and dealers make offers of how much each of them are willing to sell and what prices they will be willing to sell them at.  The price is the lowest one which allows the Fed to buy all the securities they are after.

----------


## TheTexan

> The Fed purchases their assets via a competitive bidding process.  They say how much they want to buy (say $10 million in US Treasuries) and dealers make offers of how much each of them are willing to sell and what prices they will be willing to sell them at.  The price is the lowest one which allows the Fed to buy all the securities they are after.


See previous post, Zippy.  When a counterfeiter enters a market (regardless of how "competitive" it is), everyone who engages in trades with the counterfeiter benefits monetarily.  It's basic economics.

Even indirect trades benefit.  The closer you are to the counterfeiter, the more you will gain through their theft.

----------


## Travlyr

> See previous post, Zippy.  When a counterfeiter enters a market (regardless of how "competitive" it is), everyone who engages in trades with the counterfeiter benefits monetarily.  It's basic economics.


And everyone else loses.

----------


## TheTexan

> And everyone else loses.


Indeed.

----------


## Paul Or Nothing II

> It's basic economics.  You should know this.
> 
> 10 people attend an art auction.  1 of them, named Bernie, is a counterfeiter, who's job is to buy paintings.  1 of them, named Joe, really, really likes Botticelli.
> 
> A Botticelli piece goes up for bid.  Joe is willing to pay up to $600,000 for the piece.  The other 8 people are willing to pay only $200,000 for the piece.
> 
> Without the counterfeiter, Joe would win the auction at $201,000.  With the counterfeiter, Bernie would win the auction at $601,000.
> 
> That's an extra $400,000 in the pocket for anyone who sold that Botticelli.
> ...


So you're saying Fed buys paintings from banks & that's how banks profit??? 

Although conspiracy-theorists are completely capable of claiming that Fed buys paintings from banks, I'll take a chance & assume that this is some obscure reference to Fed buying Treasuries from PDs, which begs the question why one wouldn't offer an example with Treasuries  but then what do I know, I not big on conspiracy-theories so....

Anyways, do you have any idea as to how Fed buys Treasuries from PDs? Clearly not! All the PDs quote their best possible prices to Fed & then Fed chooses to buy LOWEST priced ones so PDs don't just quote any price because there is competition amongst PDs to sell & quoting too high means the other guy sells his & you don't.

And the prices they quote are correlated to the market-prices of Treasuries because Fed isn't the only entity they sell to so selling too far above the market-price is out of the question & if you do then the other PD will undercut you because as I've said before, PDs are market-makers & market-makers are in the business of continuously buying/selling an instrument for tiny profits, that's how market-making works but clearly you wouldn't know any of that!

P.S. I didn't say that you personally said that Fed charges interest to government, all I've said that many conspiracy-theorists do make those senseless arguments without checking facts, but again your reading-comprehension isn't very strong so.....

----------


## TheTexan

> So you're saying Fed buys paintings from banks & that's how banks profit??? 
> 
> Although conspiracy-theorists are completely capable of claiming that Fed buys paintings from banks, I'll take a chance & assume that this is some obscure reference to Fed buying Treasuries from PDs, which begs the question why one wouldn't offer an example with Treasuries  but then what do I know, I not big on conspiracy-theories so....
> 
> Anyways, do you have any idea as to how Fed buys Treasuries from PDs? Clearly not! All the PDs quote their best possible prices to Fed & then Fed chooses to buy LOWEST priced ones so PDs don't just quote any price because there is competition amongst PDs to sell & quoting too high means the other guy sells his & you don't.


The mechanics of the trade doesn't matter.  Which is why I used a simplified example.  This is just yet another red herring of yours.  See below:




> When a counterfeiter enters a market (regardless of how "competitive" it is), everyone who engages in trades with the counterfeiter benefits monetarily.  It's basic economics.





> And everyone else loses.


Are you seriously trying to tell me that because the Fed buys the lowest bid it invalidates this extremely basic economic principle outlined above?





> And the prices they quote are correlated to the market-prices of Treasuries because Fed isn't the only entity they sell to so selling too far above the market-price is out of the question & if you do then the other PD will undercut you because as I've said before, PDs are market-makers & market-makers are in the business of continuously buying/selling an instrument for tiny profits, that's how market-making works but clearly you wouldn't know any of that!


You keep repeating this as if it's some kind of secret.  Everyone and their mother understood this by page 4 of this thread.  Give it a rest, already, for $#@!s sake.  

Besides, the PD's are simply an intermediary.  The profits earned due to printed money don't occur in just a single transaction.  The PD's earn a little profit by trading with the Fed.  The bankers earn a little profit by trading with the PD's.  The assets and money changes hands between bankers, PD's, and the Fed, very often so all those "little profits" add up to a lot.

In fact, the amount of profits gained through those transactions can actually be calculated, with just a little analysis.

The monetary base as of 2011 is $2,150,000,000,000.  That means the Fed, since its creation, has bought more than $2 trillion dollars worth of assets.

According to their Oct 31 2012 balance sheet, their current Assets-Liabilities = $54,760,000,000.  That means they have bought $2 trillion dollars worth of assets, and only have $54 billion dollars to show for it.   (There may be some mitigating factors in their balance sheet that changes these numbers, but my point is there is a concrete number that can be calculated.)

The Fed's $2 trillion loss over these 100 years is someone else's *profit* that obviously went _somewhere_.  I can see only two possible recipients of that profit.  1) The bankers.  2) Military industrial complex, government contractors, hospitals, etc, and any other recipient of government funds.  (Both groups 1) and 2) profit from the Fed)

That's $2,096,000,000,000 that just went "poof."  You would have me believe that this free money (it is what it is), went to the bankers, and they didn't take any cut of this pie, and simply gave it all to the government without making any profit.

However, with some time and research, we could actually determine how much of this cut the bankers took using just a bit of subtraction.  The only two possible recipients of these profits are the bankers and government spendee's.  With the treasury data available, we should be able to determine precisely how much of that $2 trillion profit was distributed by the government

From there, we could determine how much the bankers have profited by simply subtracting the M0-normalized government spending from $2.15 trillion, and then multiplying it by M2/M0 to achieve the final result.

It would take some work and careful fact checking, but I think it can be done.  And I do believe you would be surprised by the result.  Taking into account FRB, it would quickly get quite substantial.

If you're interested, this would be an interesting project, and considering that you're a banker apologist, I'm sure you'd be more than happy to catch my errors in the process.




> P.S. I didn't say that you personally said that Fed charges interest to government, all I've said that many conspiracy-theorists do make those senseless arguments without checking facts, but again your reading-comprehension isn't very strong so.....


I said you implied it.  Which you did.  Your exact words were "you people."  Which a) is an assholish thing to say begin with.  and b) I never said anything of that kind, so you throwing me in that group makes you a liar.  Your purpose with that statement was obviously to try to discredit me.  It's dishonest, and rather than own up to your mistake (or intentional lie?) you double down with more personal attacks.

----------


## Travlyr

> The mechanics of the trade doesn't matter.  Which is why I used a simplified example.  This is just yet another red herring of yours.  See below:
> 
> 
> 
> 
> 
> Are you seriously trying to tell me that because the Fed buys the lowest bid it invalidates this extremely basic economic principle outlined above?
> 
> 
> ...


Lolz... let me make a prediction. Which I am not all that good at predictions, but I'll make an exemption here. Paul or Nothing II will once again call you a crazy conspiracy-theorist which has nothing to do with your argument, but he, as the dumbass he is, will attempt to claim that the Fed is a good counterfeiter... not a bad counterfeiter. They mean well... and they wish you well while stealing your wealth.

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## TheTexan

> Lolz... let me make a prediction. Which I am not all that good at predictions, but I'll make an exemption here. Paul or Nothing II will once again call you a crazy conspiracy-theorist which has nothing to do with your argument, but he, as the dumbass he is, will attempt to claim that the Fed is a good counterfeiter... not a bad counterfeiter. They mean well... and they wish you well while stealing your wealth.


I think you'd win that wager

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## Steven Douglas

If I am in the business of loaning out other people's money as well as my own, I can certainly profit from that. That will be limited to what I and my lending customers can accumulate, of course, and there's nothing wrong with that at all. If I have a counterfeiter as a continual supplier, however, there is no question but that I am going to profit far more than if I did not have such a supplier.  

The Fed is not the primary profiteer in any of this.  As Ron Paul has stated repeatedly, the Fed is merely a facilitator.  The artificial monetary expansion that the Fed facilitates on the warfare/welfare deficit spending government side is a drop in the economic bucket compared to what it facilitates on the inflationary, exponentially expanding monetary base and aggregate credit expansion side--_with no aggregate contraction ever_--on the commercial lending side.  

Obfuscation begins as focus is divided, then concentrated on one part only, as if it represented the whole.  In addition to the Treasury causing inflation through deficit spending, the Treasury also certainly profits from all of the Fed's commercial counterfeiting activities, since the Fed turns over all its profits, minus a small dividend paid out to member banks for their capital investment.  But that is not even close to the whole of what is happening here. 

Profits (interest paid) to the Fed from all the counterfeiting represents _only the Treasury's cut_ (once it is turned over to it).  Commercial banks have a different cut on _those same counterfeiting operations_. They aren't turning over the interest they charged over and above what the Fed charged.  Profits from that interest, less whatever taxes the commercial banks do pay (read=practically zero), is entire theirs to keep.  

And that's where confusion and obfuscation further ensues.

The fact that commercial banks are dealing in counterfeit funds in the first place is dismissed entirely, or quickly forgotten.  The focus, by banking apologists, shifts instead to the "services" provided by banks. As the reasoning goes, "Banks can't be expected to lend counterfeit money, er, provide their _services_ for free, can they?"  Which completely ignores the fact that they are not profiting from _services_ provided. 

Banks aren't wiping people's asses, mowing their lawns or doing their windows for them.   Even if they were, that is not what they are charging for.  What they are providing is not a _service_, but rather access to counterfeited currency, a monetary _good_, at a profit.  Even if the banks took ZERO profit, the currency would _still be no less counterfeit_, no less inflationary in the aggregate, so long as the pool of credit is _exponentially_ ever-expanding, never contracting in the aggregate.  But the banks are not taking zero profit. They do take a profit from all of this--enormous profits in the aggregate that make all the Treasury's combined profits _absolutely pale in comparison_. And all for the privilege of providing, not a service, but a counterfeit currency that perpetually and continuously dilutes all other currency in existence.

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## Paul Or Nothing II

> The mechanics of the trade doesn't matter.  Which is why I used a simplified example.  This is just yet another red herring of yours.  See below:
> 
> 
> 
> 
> 
> 
>  Originally Posted by bxm042
> 
> ...


No, it's not "basic economics". Ok, let's say there's a guy who can produce replicas of Fed's notes, he buys a machine from you, sure, you may make a profit from the sale but had that person not existed at all, you'd have sold it to somebody else & made that profit!

Accordingly, as I've said, PDs would be profitable whether Fed existed or not, they'd just be buying/selling from/to other market-participants.

Here's basic economics. Do you know what monopsony is? I don't think so but it's the opposite of monopoly where there's one buyer & many sellers, that's pretty much the situation Fed is in where 21 PDs are underbidding each other which would naturally lead to Fed getting the lowest price possible on the market. Saying that the price paid by Fed is significantly higher than the market-price is childish.




> Besides, the PD's are simply an intermediary.  The profits earned due to printed money don't occur in just a single transaction.  The PD's earn a little profit by trading with the Fed.  The bankers earn a little profit by trading with the PD's.  The assets and money changes hands between bankers, PD's, and the Fed, very often so all those "little profits" add up to a lot.


Oh, the good ol' communist rhetoric - if somebody is profitting then it must be at everyone else's expense! 
Well, the only way your hypothesis could be taken seriously is if Fed was the net-loser in its buying/selling activities but as it turns out, one of the components of Fed's profits is the profit they make through buying/selling, which then of course is handed over to the Treasury.




> The Fed's $2 trillion loss over these 100 years is someone else's *profit* that obviously went _somewhere_.


If you didn't notice, there's actually an asset-side there somewhere so it's not technically "loss" but of course, that asset-side until recently largely consisted of Treasuries, which means Treasury creates IOUs & Fed creates new money to buy them so essentially, all those IOUs that Fed has are like free money given by Fed to the government.

On top of that if you add up the profit that Fed regularly has been handing over to Treasury over the years, then that in itself would run into trillions as well.




> That's $2,096,000,000,000 that just went "poof."  You would have me believe that this free money (it is what it is), went to the bankers, and they didn't take any cut of this pie, and simply gave it all to the government without making any profit.


No, it didn't go "poof", most of that went to the Treasury.
Again, here's how it works, just like any market-maker PDs usually hold some stock of Treasuries which they have bought with THEIR OWN money, now, Fed buys some & pays PDs with newly created money, PDs go & buy Treasuries with new money to replenish their stock of Treasuries, now, Treasury has new money & from there it enters the economy when they pay government-employees or war-contractors or give welfare or whatever, that pushes up demand & prices for goods/services/labor & so on across the economy.
Not to mention, it pushes up demand & value of Treasuries themselves & drives down interest on Treasuries, both of which help government in sustaining itself financially, without Fed being there to buy & increase demand for Treasuries, the value of Treasuries would fall as more & more of them are issued & interest would go up & at some point, interest on Treasuries itself would be high enough to consume all of the government revenue!
Anyways, point is that Treasury received all that money essentially for free INDIRECTLY from Fed, they don't need to pay it back because Fed is just another arm of the government & they essentially don't pay any interest on it.

Is it possible that a little bit of PDs profits constitutes inflation? Sure. But miniscule compared to the amount of monetary benefit government has been extracting out of the economy for a long time thru Fed-generated inflation.

Again, my original contention was to the following assertion of yours that bankers are the beneficiaries of all the inflation that occurs, which is just childish when one considers facts. 




> Another factor might be productivity.  Instead of enjoying lower costs, any benefit from productivty is inflated away.  We might make and distribute bread 10% more efficiently over a period of time, but inflation can wipe that out and result in a "modest" 5% price increase.  The actual price increase, if adjusted for inflation, would be higher - like 15%.
> 
> 
> 
> 
> 
>  Originally Posted by bxm042
> 
> 
> ...

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## Paul Or Nothing II

> I said you implied it.  Which you did.  Your exact words were "you people."  Which a) is an assholish thing to say begin with.  and b) I never said anything of that kind, so you throwing me in that group makes you a liar.  Your purpose with that statement was obviously to try to discredit me.  It's dishonest, and rather than own up to your mistake (or intentional lie?) you double down with more personal attacks.


Whether I implied this or that is a matter of speculation on your part........but then conspiracy-theorists like wildly speculating about things without facts so......

Anyways, let's see what follows "you people" -




> Once the above is debunked you people say -
> 2) Banks created & support Fed because of the money they make thru PD system - WRONG, PD system will likely continue to exists whether Fed exists or not because it will continue to help Treasury maximize its revenue from debt.


Ooh, surprisingly it says exactly what you have been claiming 

Once again, pathetic reading-skills....

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## TheTexan

> When a counterfeiter enters a market (regardless of how "competitive" it is), everyone who engages in trades with the counterfeiter benefits monetarily.  It's basic economics.





> No, it's not "basic economics".


You are again proving you are a waste of my time.  If you can't understand this basic economic principle, then you are either economically brain-damaged, or you're simply a shill for the bankers.  Take your pick.

In either case, whatever it is you have to say in the rest of your post has no value and it's not worth my time to read it.




> Whether I implied this or that is a matter of speculation on your part........but then conspiracy-theorists like wildly speculating about things without facts so......
> 
> Anyways, let's see what follows "you people" -


You tried to discredit me through your lies.  I called you on it.  You double down with personal attacks.  Again.




> Ooh, surprisingly it says exactly what you have been claiming 
> 
> Once again, pathetic reading-skills....


You are again proving your dishonesty.  Welcome to ignore PON II.

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## Zippyjuan

> The mechanics of the trade doesn't matter.  Which is why I used a simplified example.  This is just yet another red herring of yours.  See below:
> 
> 
> 
> 
> 
> Are you seriously trying to tell me that because the Fed buys the lowest bid it invalidates this extremely basic economic principle outlined above?
> 
> 
> ...


I am having troubles trying to follow your numbers here.  You seem to be trying to claim that the entire montary base is all profits and that the Federal Reserve only has $54 billion?  That the rest of their assets have gone "poof?"  It is true that the base comes from Fed purchases but they still own those purchases- they didn't go "poof". 

If I buy a US Treasury note for $10,000- I have given the seller of that note $10,000.  Their profit is not the entire $10,000.  The profit is the difference between what they paid for the note and what I paid them.  Given that the yield on US Treasury notes of five years or less have a yield of less than one percent, that isn't much gap.  The Primary Dealers have an option of what to do with US Treasuries they own. Three actually.  One- they can keep them until they mature and collect the yield from the US Treasury.  Two- they can sell whatever the amount the Fed wants to buy to the Federal Reserve.  Or they can sell them to somebody else.  They are going to do whatever will give them the best return. 

The "Vanishing assets" the Fed purchased?  According to their latest report http://www.federalreserve.gov/releas...urrent/h41.htm  the Federal Reserve holds $2.5 trillion in total securities with $1.65 trillion of those being US Treasury notes. I cannot see where you are getting a $54 billion figure from. 

Profits?  The Federal Reserve returns all profits (minus their expenses) to the Treasury.  They did not lose $2 trillion but instead earned some $80 billion and turned $77 billion over to the US Treasury. Last year the amount was even higher.   http://www.nytimes.com/2012/01/11/bu...-treasury.html




> *Fed Turns Over $77 Billion in Profits to the Treasury*
> 
> By BINYAMIN APPELBAUM
> 
> Published: January 10, 2012 
> 
> WASHINGTON — The Federal Reserve said on Tuesday that it contributed $76.9 billion in profits to the Treasury Department last year, slightly less than its record 2010 transfer but much more than in any other previous year. 
> 
> The Fed is required by law to turn over its profits to the Treasury each year, a highly lucrative byproduct of the central bank’s continuing campaign to stimulate economic growth. 
> ...

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## TheTexan

> I am having troubles trying to follow your numbers here.  You seem to be trying to claim that the entire montary base is all profits and that the Federal Reserve only has $54 billion?  That the rest of their assets have gone "poof?"  It is true that the base comes from Fed purchases *but they still own those purchases*- they didn't go "poof".


That's the thing: they *don't* still own those purchases.  Not according to their balance sheet.




> The "Vanishing assets" the Fed purchased?  According to their latest report http://www.federalreserve.gov/releas...urrent/h41.htm  the Federal Reserve holds $2.5 trillion in total securities with $1.65 trillion of those being US Treasury notes. I cannot see where you are getting a $54 billion figure from.


You're forgetting about the other side of the equation: the liabilities.  The bottom line that you should be interested in is Assets - Liabilities.  This represents the net sum of the Fed's holdings, and is only $56 billion.

Think about it this way.  If the Fed wanted to, would it be able to sell its assets and contract the monetary base back to 0?  Clearly not.  That means that the Fed has taken a net loss over the past 100 years, and that loss, naturally, was someone else's profit.  (Whether that be the bankers or recipients of government funds)




> Profits?  The Federal Reserve returns all profits (minus their expenses) to the Treasury.  They did not lose $2 trillion but instead earned some $80 billion and turned $77 billion over to the US Treasury. Last year the amount was even higher.   http://www.nytimes.com/2012/01/11/bu...-treasury.html


I don't think you're understanding my point.  I'm actually not talking about the Federal Reserve's profits.  I'm more specifically talking about their net *loss*, over the past 100 years.

For example, since you brought up this point, if you were to look at the Federal Reserve as a normal (for-profit) corporation, it is not accurate to say that the Federal Reserve returns all profits to the Treasury.  In the context of this point, it would be better stated as an operating cost, and the Fed's profit is 0.  In that sense, the Fed isn't returning all profits to the Treasury, but is simply not making any profits at all because of this "operating cost."

This cost, that the Fed sends to the Treasury, the government obviously turns around and spends.  So this goes back to what I was saying earlier, there are only two possible profiteers of the "poofed" money, and that is, 1) bankers, and 2) recipients of government funds.  The government itself clearly hasn't profited from this money, because it is deeply in debt.  They just received the money and sent it out flying in random directions.

Again, back to the original point, the Fed has bought $2.15 trillion worth of assets but only has $56 billion in net assets.  That means, over the past 100 years, it has lost $2.1 trillion into the economy (and that's just M0.. the M2 is obviously much higher).  Yes, much of that went to the Treasury, but some of it was also lost to the bankers.  You said it yourself, the Fed only hands over to the Treasury its Profits _minus Expenses_.  Those expenses obviously include a banker profit component (or the Fed wouldn't have anybody to trade with - bankers don't work for free).

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## Zippyjuan

> That's the thing: they don't still own those purchases. Not according to their balance sheet.


I have no idea where you are getting the notion that the Fed does not still own the securities they have purchased. Yes- they are listed on their balance sheet. See this link:
http://www.federalreserve.gov/releas...urrent/h41.htm

Securities held Outright: $2.583 trillion 

US Treasury Securities: $1.650 trillion
Federal Agency Debt Securities: $81 billion
Mortgage Backed Securities: $852 billion

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## Paul Or Nothing II

> But the banks are not taking zero profit. They do take a profit from all of this--enormous profits in the aggregate that make all the Treasury's combined profits _absolutely pale in comparison_.


I've already responded to the things you have said but instead of responding to those responses you have chosen to repeat the things as if they were never responded to so I won't repeat myself allover BUT one thing I do feel compelled to repeat is that Fed's benefits to Treasury are NOT limited to whatever profits they hand over to Treasury, they are just small part of it, the actual benefits may well run into trillions a year......Ron Paul has talked this & I've explained it several times in this very thread, & if you were able to recognize those then you'll definitely feel compelled to challenge the above quoted statements of yours.

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## Paul Or Nothing II

> You are again proving you are a waste of my time.  If you can't understand this basic economic principle, then you are either economically brain-damaged, or you're simply a shill for the bankers.  Take your pick.
> 
> In either case, whatever it is you have to say in the rest of your post has no value and it's not worth my time to read it.


Well, that's the thing about conspiracy-theorists, they just don't want to hear anything that gets them to challenge their beliefs that "bankers are evil" so they just accept things that vindicate their beliefs & reject everything that challanges them.
It's like arguing with communists/socialists who believe "profits are evil", they are just unwilling to keep an open mind that may be profits aren't evil & therefore no matter what arguments are made in favor of profits & capitalism, they just refuse to accept them.

What's interesting is that you conspiracy-theorists call me "banker-apologist" for pointing out government created Fed for its own benefit, ok, let's assume I am, & let's assume that bankers did create Fed & grossly benefit from it but if that were the case then why would I support ending the Fed?

But again, conspiracy-theorists fail miserably at logic....

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## Paul Or Nothing II

> I have no idea where you are getting the notion that the Fed does not still own the securities they have purchased. Yes- they are listed on their balance sheet. See this link:
> http://www.federalreserve.gov/releas...urrent/h41.htm
> 
> Securities held Outright: $2.583 trillion 
> 
> US Treasury Securities: $1.650 trillion
> Federal Agency Debt Securities: $81 billion
> Mortgage Backed Securities: $852 billion


As I've said, conspiracy-theorists fail miserably at logic.......most often they gravitate to conspiracy-theories to explain away things that they don't know or don't understand or can't understand.

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## Paul Or Nothing II

Simplest way of looking at Fed, its money-creation & surreptitious theft of people's purchasing-power would be like this.

For a long time, until the recent crisis, by far the biggest item on Fed's B/S was U.S. Treasuries/debt. Now, one just needs to ask what if Fed, right from its inception, had NEVER bought Treasuries? Well, that would have meant that the biggest item on Fed's B/S would probably have been gold & the money in the economy would have been close to government-owned reserves of gold, so money in the economy would have been significantly lower & the purchasing-power of each dollar would have been significantly higher. So again, where has that purchasing-power gone? Well, Fed has been creating money to continuously buy & increase its stockpile of Treasuries/debt, all that money is free money to the government so that's where the people's stolen purchasing-power has been going!

Again, this is just one aspect of how Fed benefits Treasury/government, there are other aspects like driving down the interest on debt & such which greatly benefit Treasury but this one lays down things in a relatively simple way.

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## TheTexan

> I have no idea where you are getting the notion that the Fed does not still own the securities they have purchased. Yes- they are listed on their balance sheet. See this link:
> http://www.federalreserve.gov/releas...urrent/h41.htm
> 
> Securities held Outright: $2.583 trillion 
> 
> US Treasury Securities: $1.650 trillion
> Federal Agency Debt Securities: $81 billion
> Mortgage Backed Securities: $852 billion


Assets - Liabilities, Zippy.  You're again forgetting the liabilities.  If I take out $1 trillion in liabilities its very easy to own $1 trillion in securities.

Another way to look at it is this:  If the Fed wanted to sell all of its assets to contract the monetary base back to 0, could it do it?

No, they could not...

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## Travlyr

> Let's look at a simple example of how new money usually enters the economy.
> 
> Depositors deposit THEIR money with banks > banks PAY Treasury to buy securities > now Fed pays newly created money to banks for the securities.


That is not money PONII. That is currency. There is a great deal of difference between the two.

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## Zippyjuan

> Assets - Liabilities, Zippy.  You're again forgetting the liabilities.  If I take out $1 trillion in liabilities its very easy to own $1 trillion in securities.
> 
> Another way to look at it is this:  If the Fed wanted to sell all of its assets to contract the monetary base back to 0, could it do it?
> 
> No, they could not...


Why couldn't they sell them? 

You are right it would not bring the monetary base to zero.  What is in the monetary base:
http://research.stlouisfed.org/fred2/series/BASE/



> The Adjusted Monetary Base is the sum of *currency (including coin) in circulation* outside Federal Reserve Banks and the U.S. Treasury, *plus deposits held by depository institutions at Federal Reserve Banks*. These data are adjusted for the effects of changes in statutory reserve requirements on the quantity of base money held by depositories.

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