What is the process and how does it get in the hands of the rich first?
Check out the
Fractional & full reserve banking & the Federal Reserve links in The Ultimate Beginner meta-thread
Sat. 12/06/16 17:14 EDT.post #167 EmbraceLiberty:What is the process and how does it get in the hands of the rich first?Also, check out this video:Fiat MoneyMy (basic) understanding is this:The government borrows money, by selling Treasury Bills (T-Bills), in an amount at least equal to its budgetary deficit plus expected interest. The Federal Reserve (the Fed) buys a significantly large quantity of government T-Bills on a regular basis (see Open Market Operations). Where does the Fed get the money to buy these T-Bills? By simply crediting their own account. This is new money. Every budgetary deficit represents an equivalent amount of additional new money that will be created. Since the government budget always contains a deficit, new money is always being created.Anyone who receives a government check, be they employees and bureaucrats, welfare recipients, government contractors, foreign governments, or bailed-out corporations, are the early recipients of the new money. "The rich" are those early recipients who receive LARGE amounts of the new money (e.g. government contractors, foreign governments, bailed-out corporations, etc.).
EmbraceLiberty:What is the process and how does it get in the hands of the rich first?
MMMark: The government borrows money, by selling Treasury Bills (T-Bills), in an amount at least equal to its budgetary deficit plus expected interest. The Federal Reserve (the Fed) buys a significantly large quantity of government T-Bills on a regular basis (see Open Market Operations). Where does the Fed get the money to buy these T-Bills? By simply crediting their own account. This is new money. Every budgetary deficit represents an equivalent amount of additional new money that will be created. Since the government budget always contains a deficit, new money is always being created.
The government borrows money, by selling Treasury Bills (T-Bills), in an amount at least equal to its budgetary deficit plus expected interest. The Federal Reserve (the Fed) buys a significantly large quantity of government T-Bills on a regular basis (see Open Market Operations). Where does the Fed get the money to buy these T-Bills? By simply crediting their own account. This is new money. Every budgetary deficit represents an equivalent amount of additional new money that will be created. Since the government budget always contains a deficit, new money is always being created.
"But, because the Fed gets this money back with interest doesn't that cause deflation?"
It will only cause deflation if the fed simply puts the new money in reserve to cover their on demand accounts (an unlikely event). In other words, if they try to use it to increase their reserves. Otherwise this event itself is neither inflationary nor deflationary, as the Fed lends it, buys new equipment, etc. Keep in mind that transfering the title to wealth never causes inflation or deflation, unless you are transferring money that someone else has warehoused.
Schools are labour camps.
What does the Fed do with the money it recieves from the loans and bonds they give out?
Inflation is the biggest robbery scheme in human history, and the masses are simply too uneducated to realize it.
Imagine stealing 3%, 5%, 7% of the money in an entire economy. That's what inflation accomplishes.
And I believe it was Friedman who explained how the mechanism works. That when the gov prints money (thus inflating the currency), it spends that money before the inflation occurs. So it's everyone else who gets boned.
"What does the Fed do with the money it recieves from the loans and bonds they give out?"
The same thing it does with other sources of income. Pay its workers and fees, print dollar bills, make more loans, etc.
Sun. 12/06/17 09:42 EDT.post #170 EmbraceLiberty:But, because the Fed gets this money back with interest doesn't that cause deflation?It would, if what the Fed did after getting the principal and interest back was keep the interest and destroy the principal. But is this what happens? I don't think so. What happens is that the government borrows again, and it borrows more the next time than the previous time, and this goes on continuously. In theory, the Fed both creates and destroys credit. In practice, on net, it only creates and expands credit. That's the game.
EmbraceLiberty:But, because the Fed gets this money back with interest doesn't that cause deflation?
The FED buys government securities with money that it creates out of thin air. Thus, open market purchases necessarily constitute an expansion in the supply of money. The question now is, who gets the money that the FED magically creates?
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
Esuric: The FED buys government securities with money that it creates out of thin air. Thus, open market purchases necessarily constitute an expansion in the supply of money. The question now is, who gets the money that the FED magically creates?
You answered your own question. The Fed prints money then buys US treasury bonds and the like. So, by that mechanism, the US gov gets the created money. The sole limiting factor is the idea that the US needs to pay interest on those bonds and can't thereby borrow forever. In theory. Kinda stupid.
Well, the question was rhetorical. But yes, the U.S. government is one of the benefactors considering that they no longer have to service the debt bought by the FED through expansionary monetary policy. The other main benefactor is the financial/banking system, i.e., the actual holders of gvt debt. The FED comes in and buys those bonds from them, at a premium, directly.
@EL: The name of the game when it comes to central banking is obfuscation. The whole system is essentially a gigantic money-laundering and counterfeiting operation. The "interest" that the Fed "earns", less operational expenses, is "donated" to the Treasury. This supposedly makes the Fed "almost no cost to taxpayers". So, it's literally a magical organization that magically benefits Americans and at no cost to them!
Remember that the government has only once paid its debt and there was no central bank at that time. Since then, the US government has always had a debt that it just keeps rolling over (paying the credit card with credit cards) and the long-run trend of the debt level is positive and exponential.
It is crucial to remember that the bonds that are purchased by commercial banks who have either received extremely cheap credit from the Fed or through credit obtained from inter-bank loans (resulting in money multiplication) are all effectively the same as if the Fed had purchased that debt itself in terms of the inflationary effect on the money supply.
There is a very, very remote sense in which these purchases are subject to market discipline because a commercial bank could fail if the Fed decided to throw them overboard as they did to Lehman Brothers. But if you had to put a number on it, I would say these purchases are 99% political and 1% market money. I would be interested to see a breakdown of how much government debt is purchased by private parties (non-Fed, non-commercial banks), I bet it's a lot smaller than the percentage of non-Fed purchases. This is just one more way to obfuscate.
Clayton -
"The "interest" that the Fed "earns", less operational expenses, is "donated" to the Treasury. This supposedly makes the Fed "almost no cost to taxpayers". So, it's literally a magical organization that magically benefits Americans and at no cost to them!"
I've never heard of that.
Regardless, US debt owned by foreign banks is not forgiven in like manner.
It's in the first paragraph on the Fed's Wiki entry,
The U.S. Government receives all of the system's annual profits, after a statutory dividend of 6% on member banks' capital investment is paid, and an account surplus is maintained. In 2010, the Federal Reserve made a profit of $82 billion and transferred $79 billion to the U.S. Treasury.[21] This was followed at the end of 2011 with a transfer of $77 billion in profits to the U.S. Treasury Department.[22]