Yes...the terminology the Fed uses is confusing...but they do award deposits to banks. It used to be these deposits were fractionally backed by gold but now they are mostly backed by t-bills.
It should be noted that it would be quite rare for the Fed to directly purchase t-bills from the Fed. If they did they would cut out the middleman in the primary dealers and they wouldn't get as many profits. And since bank profits are paramount, the Fed will probably never deal directly with the treasury regarding t-bills because it is too efficient. Now the treasury department is like a bank in that it has a large 'deposit' at the Fed...which is a 'liability' to the Fed. But the primary way they get the account credited is through bond sales and tax receipts.
We agree...the monetary base created by government is money. My point is just that M1 or bank money or checking accounts...is also money. You seemed to disagree because you said this was merely accounting entrees...which in a sense was quite correct. But then I countered that the MB can be just accounting entries as well. We can quibble semantics I suppose...
I think it is more than that. Demand deposits are money through our perception. They are a store of our value. If all our demand deposits were to vanish and only the reserves backing them remained...we would have lost a 'lot of money'.
The creation of checking accounts absolutely and without a doubt causes inflation. Some argue this is not the case because a bank only uses bank money to buy loans...and therefore they cancel each other. Many also make the same argument that the Fed because it buys t-bills off of the open market when it creates MB...that it doesn't create inflation. Both arguments are false. Whenever you create short term debt to backup long term debt, you are creating money and inflation. Be it at the Fed in the open market or at a private bank when they're financing a mortgage (or nowadays a private equity takeover which will be the new bubble).
In all my reading I've never heard of the MB be referred to as FRBN. Correct term should be 'monetary base' and not Federal Reserve Bank Notes...as they are different...but I won't push the issue after this.
I did make an error with 100k...should have been 10k. Was late and I was tired
. However, your accounting is incorrect. The Fed absolutely increases their liability (specifically deposit liability from citigroup) when they purchase a t-bill. This is also basic accounting. You can not increase an asset without increasing either a corresponding liability or equity.This is quite untrue. In fact the Fed publishes their balance sheet and you can check this out for yourself. Go to:
Couple of points to make.
Depends on the country...in England M0 and MB are the same (which is more logical). In the US, the conventional wisdom is to refer to MB as merely being how much cash and coin circulates outside of the banking system. Since obviously cash that is held by a bank...or fed deposits held by the bank...are part of the economy and base money supply...M0 is not a super important measure. MB is the best measure of direct government money because it includes all cash, coin and deposits at the Fed.
Well...t-bills 'back' the monetary base in more of an indirect way. Certainly the Fed doesn't practice direct redemptions of dollars for t-bills...but in their accounting entries they absolutely back dollars with t-bills (most of the time). Do they need to do this? No. Some of this is accounting orthodoxy. They could just fabricate another asset and use that to balance the dollar liability (say the asset of 'Federal Reserve Brownie Points' or 'good will'). I personally think it is quite foolish of the Fed to almost exclusively purchase t-bills and not just because the yields are pathetic... IMO direct rebates to the treasury would probably be the most efficient use of the money. Now the Fed is somewhat constrained by these accounting rules...but they've been playing games with 'swaps' to get around them lately. All very evil.
The Fed does indeed do a lot of masking. From 2008 to present, they've taken the MB from about 1 trillion to 2.6 trillion. Does that mean the Fed merely created 1.6 trillion? Noooo.... They created a LOT more...but then destroyed a lot more so only the net increase was 1.6 trillion. Since each deal from the Fed incurs heavy transaction fees this means the public is getting fleeced out of t-bill interest that would normally go to reduce the deficit. This is extremely evil and no politicians are talking about. You can for example read about some of the churning the Fed and the horribly corrupt open market works at:
It is both. Why is this not possible? Anything can be money... Baseball cards...sea-shells... So could one say corporate bonds be used as money? One could pay for their groceries with a corporate bond for IBM perhaps? If this is possible why would it be impossible for checking accounts to be money?
It's not a crackpot theory. Even orthodox economics agrees with anti-fractional bankers in regards to the fundamentals of how bank money works. Both agree that the measure of money needs to include bank money (almost all econ texts discuss M1, M2 and M3. Both agree that bank money can create inflation...and while not mentioned as much...most agree that repaying debts does wind down the money supply. I'm sure if you asked any top Federal Reserve official or treasury official they would actually agree on all these points.
Not true. The measure of MB is all cash in circulation + all cash in private bank vaults + all coinage + all private bank deposits at the Federal Reserve. Pretty much all of MB is in the economy. If the Federal Reserve had been holding MB in their vaults...it would not have been counted as MB. Logically it makes no sense that the Fed would create a lot of MB and then do nothing with it. Are you saying they printed a trillion plus in dollar bills and just sat on it? That's clearly not the case. They mostly created liabilities (fed deposits) to purchase an assortment of assets from the private sector to bail it out. Again the reason why inflation didn't spike (it did go up more than experts are willing to admit) is because bank aggregates crashed. Once banks start relending at their normal money multipliers...we could see mega-inflation.No.
This is the reason why:
ed; whoops, forgot the graph
The money has NOT been added to the economy, nor loaned.
It sits in FED.
Thus, printing a qazzilion dollars by the FED, but kept in the FED vault is exactly the same effect as the FED not printing a gazzilion dollars.
Not true. Money is only valuable for what it can buy...if there isn't that much stuff on the market to buy...then the value of money goes down. If people can't spend their money on crops...they'll spend their money on other things like say...fish. And the price of fish goes up. So indeed a crop failure would cause systemic inflation in an economy.
So if a blight wipes out 99% of the food supply in the world...you're saying their would be no inflation??
The dollar is a reserve currency. It's a good deal. We send worthless pieces of paper to countries like latin American and they send us ore, ag products and real wealth. As long as these countries keep the dollars for internal transactions...we luck out. But there will come a day...when these countries will get fed up with the dollar and no longer are willing to use it as a local intermediary of exchange. They will send it back to the US. But they will get real wealth in exchange. We will send them say soybeans and machine parts...and they will send us worthless pieces of paper. This absolutely will create inflation...and probably mega-inflation at that.
Yes and no. Money is not natural. Because it has the ability to satisfy legal tender laws it has a lot of artificial power and is somewhat exempt from the laws of supply and demand. Also the central banks around the world are constantly meddling with the monetary bases and bank aggregates...so none of this is natural and competitive.
