I can't wait till the Treasury explains to the traders at Fidelity that those bonds are just accounting entries, not real money. Man, they are going to be pissed. What will happen to their commissions?

when i was a small boy we had real silver in our coins - but they took it away

now it's all just fake

but don't tell anyone, or it could get hard to spend it

Amen, amen, AMEN!!!!!
Welcome to the greatest scam in history.

And you're right , Jonathan. It IS very hard to get your head around even though it is so blindlingly simple.

The Fed is a private company. You wont find it in the phone book under the Gummint section. Think about it. How would you like to create the country's money supply out of thin air and lend it out at interest to the nation year after year? Plus, you get to decide who you will lend it to. This system underpins the elite and all the mayhem they cause.

You see, Virginia, there IS a free lunch.

And there is a whole heap more to it. This is why Henry Ford said that if the people understood the banking and monetary system, there would be a revolution tomorrow.

I'm all overcome! - Reading your post has been a religious experience for me AND it's my birthday!

Indeed, the SS trust fund is an irrelevant accounting entry, like the Constitution is just… words.
Did people during the Weimar Republic banter this way when the Nazis were accumulating power?

IT'S A COOK BOOK!! A COOK BOOK!!!!

mk--

I think the problem with liberals and moralists in all societies that have gone under is more likely to be a lack of banter than an excess.

Has Sloan told the Chinese this news?

I'd typically be inclined to agree with you, Matthew. I dunno - these days it seems all bets are off.

mk, someone else was commenting on the dollar and how much trouble we'll be in soon when it folds up under the Euro. I can't recall who right now, but their dire prognostication was only months away as well.

It seems gauche to comment how much I'm enjoying this blog. Is it? If so, I apologize. Jonathon makes my day.

Oh you worry warts! If other countries decide to bail on the dollar, we still have nukes. Threatening with them in order to keep buying cheeseburgers is a relatively small adjustment to current policy. But it needn't go that far, even. Just invite some central bankers over for a conference, show them some of the choicer videos from Abu Ghraib and then ask them if they'd like Graner & pals to be called in.

Most of them are old men. It wouldn't take much to sway their opinions back to the happy (for us) side.

Jim Shanahan:

1. Yes, the Fed is in the phone book in D.C., where it's located. There's a Federal Reserve bank in many major cities, and it's in the book, too. That's where the Fed governors work when they are not meeting in D.C.

2. Take a basic Econ class. And pass it. The Fed DOES NOT have the authority to create money. Not one red cent. ALL of the bills they print represent money that already exists before they print it.

3. About 90% of the U.S. dollars that exist are bookkeeping entries, and have been since the 1900's.

4. Find out what float is, and who can do it. Thst's where money is created. Not by the Fed, or the Government.

5. The Government can't write checks without money any more than you can. Every check they write is backed either by tax revenue, or by borrowings.

6. Attempts by governments to print money freely whenever they want ALWAYS end in disaster. See Germany, late 1920's and early 1930's.

This is why it's called capitalism, and a free market.

Economically-educated Liberal.

When the government raises the legal borrowing limit for itself, the Fed then turns around and issues government securities for sale in the "open market".

It essentially PRINTS money. There is no gold standard anymore. There is no pot of gold laying in Fort Knox equivalent to all the dollars in circulation.

No, Liberal and Proud, they aren't printing money. They are BORROWING it. The securities must be SOLD first, and then that money is available to spend. BUT IT IS A LOAN. Those bonds are going to have to be redeemed. Interest is paid on them annually. Have you ever heard of bond funds? Where does their income come from?

P. S. The gold standard is unworkable. If we reconvert to it, all we will succeed in doing is draining the gold reserve into other people's pockets. Gold has no greater intrinsic value than anything else. It's only worth what people believe it's worth. Same as money. If it spends, and returns goods or services, it's as valuable as gold.

Jonathan, the Fed indirectly controls the money supply. They can make it harder for the money supply to expand by raising the discount rate (see Paul Volcker, 1979), and can flood the market with money by lowering it (see Alan Greenspan, 1990's). But they don't actually create that money. They just make it indirectly easier or harder for those who do. Fed bond purchases are unusual. They are much more likely to be selling bonds (see above) than buying them. Don't confuse this with redeeming them. Bonds have a redemption date, on which day the Fed must pay back the money to the bondholder (usually by selling a new bond to raise that money). They aren't buying them here, they are paying off the loan the bonds represent.

Economically-educated Liberal,

Thanks, I see. But the required reserve ratio can be manipulated too, correct? Even if in practice they prefer to use the discount rate?

One of my favorite aspects of economics is the tendency, during times of tight money, of communities to create their own local currencies. I know I read somewhere that lots of places did this during the early eighties. One of the people planning it in Ithaca, NY at the time supposedly said, "Money is just a unit of measurement. It's ridiculous to say there aren't any inches available for us to use."

Yep, they can manipulate the required reserve rate, also. But that's not usually the way they do it. Tinkering with the discount rate is seen as causing a more measured, less disruptive change.

The Chinese will save us. They'll give us jobs in their factories so we can work off our debts, and ramen noodles when the lunch whistle blows.

I feel so much better - I LOVE ramen noodles.

Economically Educated Liberal

1. Yes, the Fed is in the phone book in D.C., where it's located. There's a Federal Reserve bank in many major cities, and it's in the book, too. That's where the Fed governors work when they are not meeting in D.C.

No arguement there, but that's not the point. The point is that the Fed is not a Govt agency.

2. Take a basic Econ class. And pass it. The Fed DOES NOT have the authority to create money. Not one red cent. ALL of the bills they print represent money that already exists before they print it.

Passing it would not "educate" me on this subject as the truth is not taught and for very good reason. Insults lessen your own authority.

3. About 90% of the U.S. dollars that exist are bookkeeping entries, and have been since the 1900's.

No arguement there except it is more like 97%

4. Find out what float is, and who can do it. Thst's where money is created. Not by the Fed, or the Government.

I am not familiar with your term "Float". Please explain it (see my Qs below )

5. The Government can't write checks without money any more than you can. Every check they write is backed either by tax revenue, or by borrowings.

If it ran it's own bank, it could, same as the fed ( a cheque is an IOU. Who's going to dishonour it if it's your own cheque drawn on your own bank?) The underlying assumption (as taught in economics courses) is that loans come from deposits. But this is incorrect. Deposits come from loans. This is the hard part to get your head around. It's just a double entry bookeeping system.

6. Attempts by governments to print money freely whenever they want ALWAYS end in disaster. See Germany, late 1920's and early 1930's.

This doesn't square with your assertion that Govts can't write cheques against what it doesn't have.
Bringing up the German experience is a bit of a red herring. It's like withholding food from a starving person because you KNOW they will kill themselves with gluttony.

This is why it's called capitalism, and a free market. - for the Capitalists (bankers).

Some questions for you -

1. If the money supply is larger this year than last year, where did the extra MONEY come from?

2. Who made it?

3. How did they make it?

Regards

Wait... we get ramen? And what's all this about a lunch whistle?