Need Help - Calling all FED experts!

[Chester Copperpot]

Give me your Email address.. Ill send you the easiest thing to show people to understand the fed.. with pictures and all..

 

[Austrian Econ Disciple]

Honestly I would really like to see a picture where the the Fed Reserves proverbial printing presses are rolling out billions and trillions and they are rolling off the conveyor belt into the pockets of all the Corporate-State whores like GE, Raytheon, L3, Goldman Sachs, Citigroup, Chrysler, etc. and then shuffling a portion of that back to their crony politicians they've bought. On the opposite side you have the common man with their cost of living going up and interest rates near 0% forcing you to put your money back into the Wall-Street gambling machine. No one should be forced to have to play the lotto in the Stock Market just to have a return on your savings to live tomorrow.

It's thievery!

Time to out the thieves and liars for what they truly are.

 

[socal]

Yes and no. In all practicality it serves private interest and has some quirks that make it appear like a private business...but it is probably most accurate to say is a public/private hybrid (or abomination). The board of governors is publicly appointed, but the regional fed presidents are mostly privately appointed (private banks have 2/3rds the vote). The public/private angle you probably want to push is...why should our Federal Reserve regional presidents be largely elected by private banks (who in turn get regulated by them)? Why should these privately elected presidents (mostly) have chairs on the FOMC (a system in which private banks churn the fed through the flawed primary dealer system). Then ask why should banks be guaranteed their 6% dividend? We lowly peons don't get the option of a guaranteed 6% dividend!
...

You covered most of it, but I would just make a few quick points,

1) the joke is that the Federal Reserve is as federal as Federal Express. G Edward Griffin, author of The Creature from Jekyll Island, calls it a banking cartel, much like OPEC is an oil cartel,

2) the monetary base is about $2.7 trillion, not $1 trillion. Perhaps you are looking at the year-over-year % change in the monetary base at shadowstats.com,

http://research.stlouisfed.org/fred2/series/BASE

3) The statement, "The only way we can pay the interest is by borrowing more money from them" is definitely not true and is a common misconception. Consider the following simple example: I take a loan from the bank and owe them $2,000 interest/month, and at the same time I agree to do economic consulting with them for the same $2,000 /month. The interest I pay them comes from the money they pay me for my labor, and no new money needs to be created in order to pay the interest.

 

[Travlyr]

This pretty much explains it.

http://scripturalscrutinydotcom.fil...official-counterfeiter-biblical-economics.pdf

 

[mahnab]

Sure...

When the Fed fabricates the money supply they do so electronically or only in accounting form to start with. So say they buy 1B worth of T-bills from the open market. They purchase these t-bills by creating a liability on their balance sheet that the t-bill's seller's bank can then use.

So after the deal, the Fed's balance sheet looks like this:

Liabilities: +1 billion in 'deposits at the Federal Reserve'
Assets: +1 billion in treasury bills

The government has absolutely expanded the money supply and this is inflationary. In theory this direct deposit at the Fed (not to be confused with a customer deposit at their private bank) can traded around the economy from bank to bank like any form of money.

Now say that individual who just sold those t-bills...wants that 50% of that billion dollar deposit in cash (banks sometimes can put up a fight over this but that is a separate story). Say the bank has zero paper dollars on hand. They can go to the Fed and say...hey...I want this in paper format. The Fed will comply and send an armored truck from a local fed branch to provide them that money (although it is more indirect than that). The Fed accomplishes this by changing their balance sheet. They subtract 500 million from the 'deposit' liabilities and credit 500 million to their dollar bill liabilities. They then have the treasury department actually produce the paper money they need.

So the treasury is quite powerless in this matter. They are just a manufacturer of money...although the Fed does pay the treasury a small operating fee from their equity to finance the physical process of creating money. It should be said that the Treasury does have actual monetary power...when it comes to coinage (but that is a different story).

So basically the Fed (at the whim of private banks) converts the MB back and forth from electronic to paper form as needed. Banks mostly convert between the two forms as customers need. The big problem is not whether the MB exists as paper or as an accounting entry...but that it was created, how was it created, what happened with the assets purchased with the created MB and a whole host of other problems. This is all different from how banks create money (separate story...also interesting).

Questions...let me know.

Thank you for your answer. So the treasury can only print when the FED adds money into the economy, which they create by just writing a number down and having it owed back. And then that money supply is increased due to the fractional banking system?

 

[rpwi]

2) the monetary base is about $2.7 trillion, not $1 trillion. Perhaps you are looking at the year-over-year % change in the monetary base at shadowstats.com,

http://research.stlouisfed.org/fred2/series/BASE

You are correct...I misread the graph.

3) The statement, "The only way we can pay the interest is by borrowing more money from them" is definitely not true and is a common misconception. Consider the following simple example: I take a loan from the bank and owe them $2,000 interest/month, and at the same time I agree to do economic consulting with them for the same $2,000 /month. The interest I pay them comes from the money they pay me for my labor, and no new money needs to be created in order to pay the interest.

In small scale situations... But say we has a nation decided to have a national goal of paying off all debts. What do you think would happen? Could it be done? The MB is at ~2.7 trillion. M2 is at around 9.3 trillion and M3 at around 14 trillion. That's a big gap (but historically small for a multiplier which means hyper-inflation could be around the corner). I don't see how deposits that are backed by debt can pay off debt (plus interest)...it leads to circular logic. The more debt-money was repaid/retired, the less their would be available to repay the remaining debt/money and so for forth until you reach a tipping point that can only be salvaged by bankruptcy/bailouts/or more perpetual debt.

I believe what happens is that the banking system must constantly grow or die. And their only source of growth is newly created MB from the fed. I think this is most telling from open market operations. The Fed monitors the rate at which banks charge each other for reserves (in essence MB) and if it gets to low/high the fed destroys/creates MB as needed in an attempt to manipulate this market rate. That the Fed historically except in times of bank collapse has kept fabricating MB to keep rates steady suggest that the private banks do indeed depend on the Fed to provide the money to pay off the loans created by the banks.

 

[rpwi]

Thank you for your answer. So the treasury can only print when the FED adds money into the economy,

Kind of... The Fed could in 2012 not create a single fed deposit (MB), yet the treasury could print a lot of dollar bills as needed by the banking sector. The actual printing process has very little to do with the Fed's fabrication process. This is because a dollar bill in hand is (pretty much) identical and directly convertible to a dollar deposit at the federal reserve. In much the same way we don't consider 4 quarters to be different than a dollar bill, the economy doesn't consider a dollar bill to be different than a deposit at the Federal Reserve as they are both accepted forms of payment. The treasury (specifically 'The Bureau of Printing and Engraving' merely does a cosmetic insignificant function in printing the money physically. It like melting and freezing ice/water. You still have the same amount of h2o.

which they create by just writing a number down and having it owed back.

Pretty much. Fed rules kind of state that they just can't create money...but 'have to buy something' with it (mostly treasury securities...there are exceptions). You can kind of think of it like a counterfeiter who is both blessed and cursed. He is blessed because he can counterfeit with no recourse. He is cursed because the only way he can use this new money...is to buy debt (not the worst curse in the world because you get the interest). Incidentally, private banks have the same blessing/curse...which really exaggerates the debt market and creates a lot of economic distortions.

And then that money supply is increased due to the fractional banking system?

Whether an increase in the MB results in a greater increase in bank deposits (aka bank inflation as opposed fed inflation...twin evils here) depends on a number of factors. But generally speaking as long as there isn't a liquidity squeeze or a bank run, the banks will using the money multiplier compound the problem greatly be inventing deposits not backed properly by MB. Historically this has clearly been the case on average.

Curiously, the current situation is such that the multiplier for the most narrow definition of bank money (M1) is less than one. Basically this means the system is in quite a bit of trouble. It also means that in a 'modern' banking system, banks are shifting away from simple demand deposits and utilizing more so near-demand-deposits (like savings accounts) and these accounts still have significant multipliers. Rest assured the the multipliers for demands deposits will return to their historical norms in the future and when they do...and with all the MB creates these past few years...we could have a ton of inflation.

 

[mahnab]

THANK YOU rpwi! Would rep but I've don't have any to give out.

 

[MrAustin]

Yes and no. In all practicality it serves private interest and has some quirks that make it appear like a private business...but it is probably most accurate to say is a public/private hybrid (or abomination). The board of governors is publicly appointed, but the regional fed presidents are mostly privately appointed (private banks have 2/3rds the vote). The public/private angle you probably want to push is...why should our Federal Reserve regional presidents be largely elected by private banks (who in turn get regulated by them)? Why should these privately elected presidents (mostly) have chairs on the FOMC (a system in which private banks churn the fed through the flawed primary dealer system). Then ask why should banks be guaranteed their 6% dividend? We lowly peons don't get the option of a guaranteed 6% dividend!

Not directly. Banks can only really fabricate checking deposits (a form of inflation very sinister and fraudulent that even dwarfs Fed counterfeiting). In an almost direct way, the banks can induce the Fed to create the monetary base by churning the open market...but the big picture is that the Fed is constantly bailing out greedy banks who fabricate the money supply, by constantly expanding the monetary base because our debt based money system needs more money constantly created otherwise principal + interest is greater than the money supply. The angle you probably want to push is how the Fed lets private banks expand deposit money (albeit not currency). Monetary base and M1, M2 graphs from shadow stats are great references to use: http://www.shadowstats.com/charts/monetary-base-money-supply

Think you're referring to legal tender laws. Am not 100% sure but believe you can use trade and use non-dollar currencies just fine in most transactions (the taxes would still apply on the value of the trades). What legal tender mostly means is that if you are sued and offer dollars as a payment, the other party must accept. Or if you have a public debt (like taxes) it must be paid in dollars. The problem with legal tender isn't that you can't use euro's or bus tokens or paypal money, etc in the US...it's that the might of the US tax and court system enforcing contracts forces us to use dollars and this is a significant factor in propping up the dollar. I assume under a Ron Paul presidency we could pay our taxes in say gold for example.

Yep...well claim slips on gold. They have about 11 billion dollars worth that listed on their balance statement...a holdover from the days the dollar was fractionally backed by gold.

Currency is a misleading term because for many it denotes paper...monetary base is more accurate as much of the governments money supply exists in electronic form only. There are different ways the MB can enter the money supply. The open market is the main way (basically government buys sells t-bills from primary dealers and destroys/creates money in the process). They also do so through the discount window at well (lending to banks at below market rates). They're are also sneakier and more creative ways the Fed can justify creating money as well. The treasury can also expand the monetary base...but only though creating additional coinage.

Government interest? There is about a trillion dollars in the monetary base and about 2.3 trillion in fed assets...but much the government owes to itself, so I'm not sure. With bank money...yes. Only debt based deposits can pay off private debts because that the only way the monetary base expands to M1...yet private debt quite dwarfs MB.

Banks don't print money (well perhaps in a round-about way). The Fed is the main direct culprit when it comes to expanding the MB. Banks are the main culprit in expanding/fabricating bank deposits. All things being equal, yeah they both cause inflation. In reality, the dollar is a reserve currency, so we haven't realized the true effects of our counterfeiting (yet). When the chickens come home to roost and we stop sending worthless pieces of paper to Asia for quality electronic goods...that's when we have to worry. Now counterfeited money can often actually result in job losses instead of inflation. This is because the new money creates economic distortions that creates mal-investment that creates (eventually) job-losses. The private sector can be inflationary/deflationary while the Fed the opposite. It may seem contradictory, but it can happen. This is why it is stupid to argue...inflation hasn't been too bad...therefore what the Fed is doing is probably ok.

Mostly correct. Congress could pass a statue to correct the matter but outside of that and presidential appointments to the board of governors...yeah the Fed is pretty unaccountable. In theory they have to abide by their charter, but if they aren't audited this is worthless.

Am not sure.

Like the idea of what you're doing...thought about doing a bullet point truth bomb on the Fed myself. Don't take some of my advice too literally. If you want to say the Fed is privately owned...that is close enough and will open up people's eyes and that's what's needed.

Key points IMO (that I would stress if I were doing a fact sheet) would be:

* How private banks benefit unfairly from the discount window
* How private banks create money (with quotes from Thomas Jefferson, Madison and others on this matter)
* How the Fed ensure private banks can create money
* How the Fed is largely unaccountable
* How the dollar being a reserve currency disguises our true inflation
* How fake money can cause unemployment rather than inflation
* How Primary Dealers have unfair exclusive privileged access to the open market and how it is creating churning
* How private banks have unfair exclusive ability to have deposits at the Fed (you or I can't)
* How the banks are guaranteed their 6% dividend
* How private banks unfairly are able to elect the fed presidents...and some of these presidents control the 'open market'
* How the Fed has made a mess of things with the bailouts...(size of the bailouts / number of households is quite eye opening...we could have had massive citizen dividends!)
* How the Fed swapped good debt for bad in the recent bailout was economic malpractice
* How the Fed creates a moral hazard through it's implied status as 'lender of last resort'
* How the Fed lacks transparency
* How the Fed trying to set interest rates create malinvestment and churning in the open market
* That debt can't be used to repay debt (more of an argument against the private banking system which the Fed props up by constantly expanding money through open market signals so the banks always have new debt money to pay off old debt money.
* How the Fed has been doing stealth bailouts (like their 0% interest rate trick)

...all I can think of for now. There other minor tricks the fed pulls like with float...but above are the biggies.

WOW! Absolutely outstanding! Thanks a ton! This is exactly what I was hoping someone in these forums could do. I just don't understand it all well enough and it would take me months to research all of that on my own. Tons of respect to you for all the time and reading and studying you have done on the topic. Knowledge is power. Hope to catch up to you eventaully!

 

[MrAustin]

Been checking out everybody's links. Man this stuff is seriously awesome! Thank you everybody. I'll start getting to work trying to simplify all this into a few main points for an info-graphic.

 

[Liberty1789]

Don't forget to include a picture of how central banks in dire straits end up finding dollars:

 

[BigByrd47119]

Well, I don't have the time to scan this whole thread, so if this has been posted already my apologies.

With that said, this is the video that woke me up (30 min long but oh-so-amazing!).

 

[AceNZ]

I mostly agree with @rpwi, but here's my spin on things:

I am looking for quick facutal zingers - one short sentence for each. I don't know the FED well enough to do this on my own. Here are a few I came up with, but I am not sure if they are 100% accurate. Maybe you all can check them for accuracy/completeness????

-The Federal Reserve bank is privately owned and operated. It might as well be Wells Fargo.

Although the Fed is private, it's board is publicly appointed, and all of its profits are rebated to the Treasury every year (after deducting operating expenses and a guaranteed 6% dividend) -- so saying it may as well be Wells Fargo is misleading.

-This commercial bank has been given the exclusive power to create US paper money.

Paper money is created by the Treasury, not by the Fed. The Fed creates credit, which can be transformed into paper money at the request of member banks.

-It is illegal for us to use anything other than this paper money.

Not true. You can use coins, checks, credit cards. If you're talking about legal tender, that's a different story, but you can still legally request payment through whatever form you want: bananas would be fine, for example. It's just that in the event of a dispute, the courts can't force you to pay in anything other than dollars.

-The Federal Reserve bank stores gold though.

Yes. They also carry US gold on their book at a value of something like $40/oz. I've always suspected the reason they don't mark it up to current market value is to avoid paying the resulting profits back to the Treasury.

-The only way this currency ever gets into circulation is if it is borrowed from the Federal Reserve Bank.

No. Currency gets into circulation when regular banks request it from the Fed, who then asks the Treasury to print it. The Fed buys the notes from the Treasury at the cost to print them (a few cents each), and sends them to member banks in exchange for credit money they have on deposit with the Fed. Member banks can then give the currency to their depositors in response to a withdrawal request.

-The only way we can pay the interest is by borrowing more money from them.

No. Interest is paid off through production. It's endless compounding that's the problem, not interest by itself.

-Every time this bank prints itself more money, your money is worth less. This is the cause of inflation. (this would go with the dollar graph)

No. While it's true that money is created by the Fed and by regular banks (in the form of loans), it's also true that money is destroyed when loans are paid off. So the result is only inflationary if more loans are being created than repaid.

Also, money is never created by actually printing it. Money is created through a bookkeeping process as a result of borrowing, either by the Government borrowing from the Fed, or by private individuals and companies borrowing from banks. Printed money (cash) is printed and exchanged for those bookkeeping entries.

-The Feral reserve is not accountable to the government and does not need authorization from the president or congress for anything it does.

Mostly true. The Fed was established to be an independent central bank. The idea was to avoid political influence. Instead, we have Corporate influence.

-The Federal Reserve operates completely in secret. It's books have never been opened to the public or the federal government.

The Fed publishes some of their operational details regularly, but yes, most of the details of what they do are secret.

-The only audit of the Federal Reserve in it's 100 year history revealed $15 trillion in secret bailouts that took place between 2008 and 2010.

The Fed is audited every year in a superficial way. In depth audits are what's lacking.


If you want to focus on why the Fed is bad, here are some quick ideas for you:

-- One of the Fed's main reasons for existence is to bail out large financial institutions (or other "favorites") when they get into trouble. They do this without the input or authorization of any elected official, but all holders of US credit money pay the price.
-- The Fed is a key source of funding for the Federal government over and above taxes and borrowing, by creating new money when/as needed. In WW II, the US had huge campaigns to get people to buy war bonds to finance the war. Now, if China or whoever won't buy enough bonds, the Fed just buys them instead, and creates money in the process (and inflation).
-- The Fed manipulates interest rates, which contributes to extremes in the business cycle and which distorts many aspects of the economy by effectively subsidizing industries that need to borrow heavily to survive.

You know, the more I think about this, the more it seem to me that one of the most powerful anti-Obama, anti-old-style-GOP, anti-Fed and pro-RP messages should be a stand against Corporatism. In spite of his populist rhetoric, Obama is a hard-core corporatist, not much different from Romney and Gingrich. And the Fed is THE central tool of corporatism; it's the engine that makes all the rest possible.

 

[Liberty1789]

It is suicidal to recommend such a cartoon video. The conspirationist non-sense is just beyond toxic. Such an approach condemns Ron Paul to the fringes and certainly won't help his cause.

The Fed was not devised as a blood-sucking monster at all. This is sheer lunacy. It was created to defuse bank panic runs. JP Morgan was fed up to be the creditor of last resort and thought that the banks should organise themselves to provide one. The intention is laudable but it created an incentive for banks to lend more agressively as the Fed stood behind them. It duly resulted in the debt bubble of the 20s and the 30s' following depression.

The money printing is a separate issue linked to the end of the gold standard in 1933 and relates, in my view, to the advent of the welfare state.

 

[Travlyr]

It is suicidal to recommend such a cartoon video. The conspirationist non-sense is just beyond toxic. Such an approach condemns Ron Paul to the fringes and certainly won't help his cause.

The Fed was not devised as a blood-sucking monster at all. This is sheer lunacy. It was created to defuse bank panic runs. JP Morgan was fed up to be the creditor of last resort and thought that the banks should organise themselves to provide one. The intention is laudable but it created an incentive for banks to lend more agressively as the Fed stood behind them. It duly resulted in the debt bubble of the 20s and the 30s' following depression.

The money printing is a separate issue linked to the end of the gold standard in 1933 and relates, in my view, to the advent of the welfare state.

Sheer Lunacy? A lot of famous bankers, economists, and politicians disagree.

"By this means government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft." - Lord John Maynard Keynes, "Economic Consequences of Peace"

"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance." - James Madison

"If ever again our nation stumbles upon unfunded paper, it shall surely be like death to our body politic. This country will crash." - George Washington

"Our goal is gradually to absorb the wealth of the world." - Cecil Rhodes, "The secret banking cabal"

"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

"Should government refrain from regulation and taxation, the worthlessness of the money becomes apparent and the fraud can no longer be concealed." - Lord John Maynard Keynes, "The Economic Consequences of Peace"

"Banking was conceived in iniquity and born in sin. Bankers own the Earth. Take it away from them but leave them the power to create money, and, with the flick of a pen, they will create enough money to buy it back again. Take this great power away from them and all great fortunes like mine will disappear and they ought to disappear, for then this would be a better and happier world to live in. But, if you want to continue to be the slave of the bankers and pay the cost of your own slavery, then let the bankers continue to create money and control credit." - Sir Josiah Stamp, President, Bank of England (2nd richest man in England)

The banking industry is a totally unnecessary institution. It is all about control.

"Permit me to issue and control the money of a nation and I care not who makes the laws." Mayer Amschel Rothschild, founder of the Rothschild international Banking Dynasty, 1790

 

[Liberty1789]

Thanks for the quotes, Travlyr. None of them refers directly to the Fed though, and a lot actually predate the Fed's existence. The Fed did not invent banking nor inflation.

I think that radical demonization of finance is a net negative for Ron Paul's campaign. It costs votes. People with savings simply do not vote for radicals: they are just spooked away. That is the majority of old people and the majority of primary voters. Paul must be reassuring on sound money, not radical. His motto should be : a stitch in time saves nine. He should capitalize on his medical background: the earlier the treatment, the lower the pain. this is worth millions of votes nationally. Unfortunately, the campaign is very poor at this.