Economics Questions

Re: Money As Debt & Govt Auctioning money

ViennaSausage — Tue, 10 Jun 2008 18:28:17 GMT

we have to make a distiction between the Federal Government and the Federal Reserve. Although they both have the word Federal in it, they are NOT one and the same. The Federal Reserve is a Central Bank. Not only is it a Central Bank, but it is a FORCED monopoly on money and the money supply. The Federal Goverment is the Government of the United States of America (supposedly;). It is NOT the lendor. It is a borrower from the Federal Reserve. That is how money can been seen as debt.

Re: Money As Debt & Govt Auctioning money

fsk — Tue, 10 Jun 2008 15:00:57 GMT

The legal reserve ratio is 10:1. For every $1 the Federal Reserve creates, the financial industry can then create another $9. Banks are always "loaned up" to the maximum legal reserve ratio. Surplus bank reserves are loaned to other banks at the "Fed Funds Rate", currently 2%. The Federal Reserve continually "monetizes the debt", creating enough new reserves so that the Fed Funds Rate stays near the target of 2%. The Federal Reserve has (literally) an infinite budget, so it can "monetize the debt" as much as desired.

Re: Money As Debt & Govt Auctioning money

Solredime — Tue, 10 Jun 2008 14:56:24 GMT

I see now. Still, if you compare the rate at which government debt grows, and the rate at which overall debt grows, and then factor in foreign US debt which is not created by the Fed, then commercial banking accounts for the vast majority of new money creation.

Re: Money As Debt & Govt Auctioning money

fsk — Tue, 10 Jun 2008 14:46:38 GMT

It also occurs when the Federal Reserve monetizes the debt. The Compound Interest Paradox operates with the full force of law and is absolutely unavoidable if you use Federal Reserve Notes as money.

Re: Money As Debt & Govt Auctioning money

Solredime — Tue, 10 Jun 2008 14:38:22 GMT

I always thought that the "money created as debt" concept only (or mostly) applied to money created by commercial banks, which by the way accounts for something like 95% of the increase in the money supply. Commercial banks, lending through fractional reserve banking, do not print the money, they write it in as a booking entry when loans are needed, and thus no physical money is created.

Re: Money As Debt & Govt Auctioning money

fsk — Tue, 10 Jun 2008 14:30:55 GMT

I call this the Compound Interest Paradox. I also wrote a post on monetizing the debt. Look around on my blog for more details.

Re: Money As Debt & Govt Auctioning money

ChaseCola — Tue, 10 Jun 2008 05:15:34 GMT

It is more like it was debt, the fed buys US bonds from the bond holders with money it has created. So that is why it is the "inflation tax" because each dollar created is essentialy being given to the government, because the government does not need to pay back the bond holder and it devalues the purchasing power of each citizen

Money As Debt & Govt Auctioning money

Tuneman — Tue, 10 Jun 2008 04:36:02 GMT

I have heard that each bill of money printed can be seen as debt, however I dont understand this. When money is printed, and held in the fed, this lowers the fed funds rate because now they have more willingness to get rid of this money. Supply goes up, and demand stays the same, so price (intrest rate) goes down. However when its lent out, it is the government that is the lendor, and not the one in debt..

This is probably a easy question for many of you, but since its so fundamental I think its important that I understand it.