Re: Confused about the Federal Reserve?

On Nov 25, 1:52 pm, phil scott <p...@xxxxxxxxxxxxx> wrote:
An explanation of how the private Federal Reserve Banks generate
wealth for themselves.

The fed prints money ..

Wrong. The treasury department is solely in charge of printing money.
The Federal Reserve has no relation to the US mint and has never ever
printed a bill or made a coin.

at virtually no cost, then loans it *at
interest..to the banks, who loan it to us at even more interest...

Not entirely wrong yet, this is far from the main mechanism. The Fed
is the lender of last resort. If banks do not meet reserve
requirements they can borrow from the Fed at the discount rate. This
is below the market rate. The access to the discount window is
severely limited due to the benefits of arbitrage. This is far from
the main way the money supply is manipulated.

The most common form of contractions and expansions in the money
supply are through open market operation. The Fed constantly buys and
sells gold and government bonds. When the Fed sells one of these
assets or debt instruments the money supply shrinks. The money is
transfered from the buyers bank to reserves at the Fed and is no
longer in circulation. If the Fed buys they write a check and new
money is injected into the system. This is how money is created and
destroyed by the Fed in most cases.

Discount loans are often over night and very short term so any money
injected from a discount loan is shortly taken back out when the bank
must pay the loan.


we
use that money to buy property etc. then the fed cuts off money
supply... as in 1929.. (prior that it doubled the money supply)

The economy built on such banking practices collapses... the loans go
into default... the banks seize the property... presto... worthless
paper turned into real property


Wrong. It is the purpose of the Fed to make sure this collapse does
not happen. In 1929, the Fed screwed up and actually cut the money
supply, instead of lowered the rate of growth. This dried up excess
reserves for banks to loan with. Furthermore the reserves were not on
hand when demanded and the banking system did collapse. The Fed since
has worked to make sure this does not happen again. Essentially the
fractional reserve system must mean adequate reserves are kept if
customers demand this. The expansion of credit in the 1920's combined
with the Fed tightening made this difficult. The proof the Fed
counteracts these problems is in the news paper daily now. The Fed is
making moves to make sure banks have adequate reserves despite the
large threat of massive defaults on ARM loans made when interest rates
were very low. Banks are actually are actually refinancing and
knocking off some of the old principle to make sure the loans do not
default and they do not have to face reserves not building due to
loans not being paid.

owned by...guess who?... the banks. In the final analysis, the
owners of the federal reserve banks.


Wrong again. The owners of banks do not own the Fed. The Fed is a
government organization designed to regulate and oversee the proper
workings of the banking system. They provide auditing, check clearing,
and regulations for banks. They do not own the banks in the US. The
banks have a worst case scenario if people default. Especially today
since property values have dropped in some areas. They paid out more
than what the land and buildings are worth at present time and can't
not sell the property for the price they loaned someone to pay for it.
This is not unsimilar to the 1920's dust bowl when the droughts
affected topsoil and the farm land was actually worth less than
mortgaged value. Getting the property is worst case for banks now.
That is why they are redoing a lot of loans hoping the people can pay
and the loss are limited. With values dropping they get much less from
foreclosing and reselling than they paid out.

simple enough.

any valid counter argument will consist of factual evidence... and
rational discourse, not name calling or other abusive behaviors of
course.


This is all factual evidence that is easy to find in the current news
and a history of the Federal Reserve. Their website is a good place to
look. There are some kooks out there like Alex Jones who present rumor
and conspiracy theory about who owns the Fed and why it was set up but
anyone with a critical mind can quickly see they do not have the facts
to back up the claims like the Fed receives tax money. Patently
untrue. It is off budget because they generate their own income
through loans to banks and fees for services to banks.
.

Relevant Pages

  • Re: the Fed: comment from weblog
    ... >>>But the Fed is the monopoly suppier of bank reserves. ... the Federal funds rate goes down. ... >>>money, changes in the supply of bank reserves affect the money supply ... transferred between banks. ...
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  • The Fed Officially Kicks Off the Next Recession
    ... The Fed Officially Kicks Off the Next Recession ... commercial real estate loans. ... official tools to control the money supply: ... (telling banks how much of their deposits they cannot lend. ...
    (misc.invest.stocks)
  • Re: the Fed: comment from weblog
    ... >But the Fed is the monopoly suppier of bank reserves. ... "The Fed sets a target for the Fed funds rate, ... >money, changes in the supply of bank reserves affect the money supply ... The banks can lend that money because it is a part ...
    (sci.econ)
  • Re: the Fed: comment from weblog
    ... > relation to its primary targets -- inflation rate and unemployment. ... > It now targets the overnight lending rate, and leaves both the money ... > supply and banking system reserves as residuals. ... The banks can lend that money because it is a part ...
    (sci.econ)
  • Re: Bush busts Social Security with massive deficits
    ... >Demand for loans is not the only affect on the money supply. ... The Fed "injects" reserves for only two reasons: ... Banks are not the only entity that create money. ... >> money multiplier hypothesis is not just another myth. ...
    (sci.econ)