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Forum Post: All Roads Lead to the Fed

Posted 11 years ago on June 16, 2012, 11:52 a.m. EST by hchc (3297) from Tampa, FL
This content is user submitted and not an official statement

Until the people that control the money are addressed, the thing is going to continue to get worse.

Kucinich, Paul and Sanders are the only ones who really want to do this. I think that is very telling of the others.

55 Comments

55 Comments


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[-] 1 points by francismjenkins (3713) 11 years ago

I understand the sentiment, but I'm wondering, what happens to the dollar, do we have a national bank of sorts (that lends money interest free), keeping in mind charging zero interest actually translates to negative interest (factoring in inflation), if no national bank, how is money created, do we move over to some scheme of credits or vouchers (and abandon money altogether)?

Please don't interpret this as opposition to the idea, just questions. It would seem to me that if we dismantled the fed, we would really need an entirely new system, because putting our current political leaders in charge of money creation seems like jumping from the frying pan into the fire.

[-] 1 points by john23 (-272) 11 years ago

a good pictorial overview as to how this process works can be found here:

http://hmscoop.com/FractionalReserves.html

[-] 1 points by Underdog (2971) from Clermont, FL 11 years ago
[-] 1 points by TrevorMnemonic (5827) 11 years ago

The Federal Reserve creates money out of nothing, gives it to the banks, banks keep it on deposit, gain interest, pays high CEO bonuses, fat cat city... all while the rest of America falls apart. IN THE NUMBER OF TRILLIONS!!!

People are unaware of this truth. The federal reserve has created trillions of dollars time and time again, decreasing the value of our hard earned money, just to cover the recklessness and greed of the banksters. Connect the dots, they're working together.

There's another game going on way over our heads. The people are struggling... while the banks with the help of the federal reserve have captured control of our government. Could the threat to our nation's sovereignty be any clearer?

Also dennis kucinich is my hero.

[-] 2 points by geo (2638) from Concord, NC 11 years ago

The US Treasury Bureau of Engraving and Printing (BEP) creates money and gives it to the Federal Reserve. The Federal Reserve does not "creates money out of nothing, gives it to the banks".

"People are unaware of this truth."

Because it is not true.

http://www.moneyfactory.gov/aboutthebep.html

"There's another game going on way over our heads. The people are struggling... while the banks with the help of the federal reserve have captured control of our government. "

Along with the Oil industry, Chemical Industry, and Mining interests. There is no doubt that special interests have captured our government.

[-] 1 points by TrevorMnemonic (5827) 11 years ago

Yes that is where the money is created but this bureau is not responsible for how much and when and where the money goes. That is the duty of the Federal Reserve.

The place you're talking about is literally just the presses. Did you even read the damn link you shared? - "The Federal Reserve operates as the nation's central bank and serves to ensure that adequate amounts of currency and coin are in circulation." This means the Federal Reserve says how much gets printed.

Do you not remember Alan Grayson making a huge deal about the fed giving half a trillion dollars to foreign banks? Then Bernanke said they got that power in 1913 in the Federal Reserve act.

Your reply is misleading and obviously ignorant of the truth.

The Fed calls the shots. While Ben Bernanke doesn't have his own private printing press in his house... the Fed still calls the shots.

The Fed's duties have expanded over the years, and today, according to official Federal Reserve documentation, include conducting the nation's monetary policy, supervising and regulating banking institutions, maintaining the stability of the financial system and providing financial services to depository institutions, the U.S. government, and foreign official institutions

I'm going to stick with trusting Alan Grayson, Dennis Kucinich, and Bernie Sanders on this issue.

Don't be so obtuse.

"The Federal Reserve creates money out of nothing, gives it to the banks, banks keep it on deposit, gain interest, pays high CEO bonuses, fat cat city... all while the rest of America falls apart." - Dennis Kucinich

This is a fact

[-] 1 points by geo (2638) from Concord, NC 11 years ago

Wrong again.

You forgot the whole bond market and T-bills for generating the cash thats needed in the first place. Thats how money gets to the Federal Reserve. The Federal Reserve has Trillions on deposit, and uses that to expand the money supply when needed. Money isn't created from nothing.

Instead of trusting third parties on the issue like Sanders (whom I happen to like) I suggest you look into how the operation really works first hand.

The Fed is no saint in this story, but what you are posting is not how the system works in reality. Yes the Fed calls the shots.... that is the function of a central bank. Yes it is independent from control in this manner, to keep it isolated from the whims of political pressure, which makes it susceptible to other pressures.

What first has to be realized is that without exception, the policy decisions being made regarding our currency is being made by people who do not understand the rules of fiat currency.

[-] 1 points by TrevorMnemonic (5827) 11 years ago

You're trying to get me in a gotcha moment, and it's not happening. I have done research into this issue. With anything you can always learn more, but I am in no way talking out of my ass on this issue.

"The Federal Reserve creates money out of nothing, gives it to the banks, banks keep it on deposit, gain interest, pays high CEO bonuses, fat cat city... all while the rest of America falls apart." - Dennis Kucinich

Yes, there is a process behind the word create. It's layman's terms.

We're talking trillions of dollars. This is a corrupt system.

HR 2990 is the answer - http://www.govtrack.us/congress/bills/112/hr2990/text

[-] 0 points by capitalistswine1 (2) 11 years ago

Please read Modern Money Mechanics published by the fed bank of chicago. The Fed absolutely does create money out of nothing. That is the concise definition of a fractional reserve banking system. The Fed lends money to another private bank at the Discount rate. The money is just a character on a computer screen, debits and credits. The bank then lends against this fictional money many times over. Please look at this publication and revisit your post.

[-] 1 points by geo (2638) from Concord, NC 11 years ago

Fractional reserve banking does not create money out of nothing. It creates debt obligations that aren't realized, it does not create real cash. The only time those debt obligations become realized is when there is a run on the banks as recently happened in 2008. To support the crunch on reserves money is supplied by the Fed to cover what the reserves don't. Even then the full debt obligations are not covered but selectively met for each occurrence.

Fed lending money at the discount rate is through reserve lending by other banks in the Fed system. Cash reserves are kept by the member banks in Fed accounts. This is overnight lending and paid back the next day, mostly for banks who fall short of reserves needed for the days clearing needs. Money in this way is recycled not new money added to the money supply.

Only the US Treasury creates real cash.

[-] 1 points by john23 (-272) 11 years ago

Fractional reserves absolutely create money out of nothing. If you're saying it doesn't create physical money or hard money you're right...but it expands the money supply through creation of money by computers....it doesn't matter if it's hard money or not, it has the same inflationary effect that printing the hard money would.

[-] 1 points by geo (2638) from Concord, NC 11 years ago

No it doesn't have the same inflationary effect. Because debt obligations are created through FRB. It would only be inflationary if the Federal Reserve filled those debt obligations. During a strong recessionary period the Fed indeed fills a large portion of them and does actually expand the money supply... normally that is not the case.

[-] 1 points by john23 (-272) 11 years ago

That is absolutely wrong...it does have the exact same inflationary effect. Even the Fed uses the reserve ratio (lower it to increase the supply of money) to increase inflation or credit/stimulate the economy through credit creation. There have been entire books written about the inflationary effects of fractional reserves....an example is credit expansion that took place during the roaring 20's from fractional reserves while we were still under the gold standard.

[-] 1 points by geo (2638) from Concord, NC 11 years ago

If gives the Fed flexibility by choosing to fill the debt obligations as needed, which can increase the money supply... in that sense its inflationary, but by not filling the debts it is non inflationary... its a two way street. But to think that the total debt obligation is real cash in the sense that the total debt is actually a part of the money supply in as a positive ledger entry is wrong.

[-] 1 points by john23 (-272) 11 years ago

I know what you're saying....you're saying that because it is a debt obligation that has to be repaid eventually it doesn't matter and cancels the created money. What happens though is that as soon as that debt obligation is repaid at a future date...the bank turns around and loans that same money back out because it has more reserves and can once again expand the money supply.

In this example http://hmscoop.com/FractionalReserves.html

If person B pays back his loan to bank A...what does bank A do with the extra reserves? Loans it right back out to another person because it has excess reserves once again....putting the money supply right back where it was before. It doesn't matter that it's a debt obligation...has the same effect as hard money or gold.

[-] 1 points by geo (2638) from Concord, NC 11 years ago

If that were truly how FRB operates there would be a never ending increase in the money supply that is exponential in size.... and thats not what happens in practice. Think about it.

[-] 1 points by john23 (-272) 11 years ago

No it wouldn't mean that....you're right there isn't an ever increasing supply of money from fractional reserves. When the reserve requirement is lowered you'll go through a period of the inflationary effects until the banks are loaned out to reserve requirements again where equilibrium occurs.

My problem with fractional reserves is it causes huge expansions and contractions of the money supply....especially during crisis...making them all the more worse. Pyramiding debt never works....you could almost call it a form of derivatives.

[-] 1 points by geo (2638) from Concord, NC 11 years ago

Look I'm totally against the practice of FRB as well. I see it as a way for banks to make more profits through interests through increased debt, and yes debt pyramiding does not work.

[-] 0 points by john23 (-272) 11 years ago

The Treasury coins money....the Fed introduces that money into the system. The Fed also introduces computer generated money into the system....aka creating money out of thin air. The treasury has no say on the supply of money...the Fed is in charge of that.

[-] 1 points by geo (2638) from Concord, NC 11 years ago

The US Treasury is in charge of the bond and T-bill market, which they print and sell independently of the Federal Reserve. This market has a direct influence on our money supply and the Federal deficit.

[-] 1 points by john23 (-272) 11 years ago

The Fed ultimately controls the supply of money though to create the economic stimulus it so wishes. It does this by buying/selling (or introducing money/decreasing money) government bonds...the treasury does not control the money supply..the fed does.

[-] 1 points by geo (2638) from Concord, NC 11 years ago

You do realize that they work hand in hand?

[-] 1 points by john23 (-272) 11 years ago

With the Fed steering the car though...the Fed projects what the supply of money should be...not the Treasury..

[-] 1 points by geo (2638) from Concord, NC 11 years ago

With the US Treasury steering the car. The Treasury creates overall policy and is ultimately responsible for the economy. The Fed runs the day to day operations.

[-] 1 points by john23 (-272) 11 years ago

No, the treasury does not control the supply of money. Even the left wing will openly admit this....dennis kucinich always talks about taking the money printing power away from the fed and bringing it back to congress....i don't agree with this, but it proves the point.

http://www.youtube.com/watch?v=4IdPyYRnOY0

[-] 2 points by geo (2638) from Concord, NC 11 years ago

That has always been the political football since the Fed was created. The Fed is insulated from direct political pressure in its decision making by being semi-independent. That was an intentional part of its design. The thought of having one party or another controlling the daily money supply is ridiculous.

The Congress is in charge of the budget, the real purse strings of the nation and look what a mess its made so far. There still hasn't been a budget passed for how long now?

Regardless, the Fed reports to Congress already. They just have no say in its day to day operations and that is a good thing as you say also. Dennis Kucinich can say whatever he wants... it is clearly politically motivated and the same old song thats been sung for the past 100 years.

[-] 2 points by john23 (-272) 11 years ago

Don't get me wrong i agree...having the money printing thrown to congress scares me just as much as the fed. But the fed is the decision maker with the money supply as it lies right now.

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[-] 1 points by VQkag2 (16478) 11 years ago

I agree. how do we end the fed? What replaces it? How do we manage the transition? And how does the new system/transition affect the regular guy/girl/lgbt?

[-] 2 points by TrevorMnemonic (5827) 11 years ago

The slogan "End the Fed" is often as confusing to some as "We are the 99%"

Obviously OWS did not represent the 99% but that is not what the message means.

Same with End the Fed. End the fed means end the corrupt abuse of our monetary system and the manipulation of the federal reserve. Not necessarily just close it down.

This system should be moved under the treasury to be fully accountable and operated under a watchful eye.

Dennis Kucinich outlines how to transition away from the current system here in his bill HR 2990, The NEED Act. I happen to agree with Dennis on this strategy.

http://www.govtrack.us/congress/bills/112/hr2990/text

[-] 1 points by VQkag2 (16478) 11 years ago

I will peruse. Dennis is also someone I respect so I probably agree as well. I suppose it isn't easy to get there, and probably painful. But nothing is ever easy.

[-] 1 points by niphtrique (323) from Sneek, FR 11 years ago

So we cannot expect anything from politicians.

We know the problems but discussion does not solve them.

A superior power is needed to finish off the current world order based on usury banking.

It must be simple and easy to implement.

On the Tesla Conference on alternative currencies I will do the following proposal:

http://www.naturalmoney.org/teslaconference.html

[-] 1 points by geo (2638) from Concord, NC 11 years ago

There is nothing wrong with the currency we have right now. The policy makers do not understand the rules regarding fiat currency. Until economists who understand MMT become the policy makers, then we will continue to have problems.

[-] 1 points by niphtrique (323) from Sneek, FR 11 years ago

Economists are as bad as politicians, probably even worse. In many respects economics is a pseudo science like astrology.

"Everything you know about economics is wrong. Dead wrong. Everything. The conclusions of economists are based on a fiction that distorts everything else. As a result economics is as real as one of the summer blockbusters like “Battleship,” “The Avenger” or “Prometheus.”

The difference is that the economic profession is a genuine threat, not entertainment. Economics dogma is on track to destroy the world with a misleading ideology.

Why? Because all economics is based on the absurd Myth of Perpetual Growth. Yes, all theories and business plans based on growth are mythological."

http://articles.marketwatch.com/2012-06-12/commentary/32176488_1_economics-gdp-growth-myth

Having hands in the cookie jar will corrupt everybody. There should be no money creation and no central banks making decisions about interest rates. All loans must come from savings and interest should be forbidden.

[-] 1 points by geo (2638) from Concord, NC 11 years ago

Great Marketwatch article, I read that earlier and agree. The Austrian and Chicago school of economics was out in left field.

However, with our current currency there exists a set of rules that work. MMT or Modern Monetary Theory, that has been around since the 1930's. I advise you to look into it as it turns some ideas that the old liberal economists had on their heads.

http://hir.harvard.edu/debt-deficits-and-modern-monetary-theory

http://neweconomicperspectives.org/2012/05/playing-monopolis-monopoly-an-inquiry-into-why-we-are-making-ourselves-so-miserable.html

[-] 1 points by niphtrique (323) from Sneek, FR 11 years ago

I guess the problem with MMT lies in here:

"The conclusion that MMT necessarily draws from this is that private net saving is only possible if the government runs budget deficits; alternately, the private sector is forced to dis-save when the government runs a budget surplus."

http://en.wikipedia.org/wiki/Chartalism

The hidden assumption is that money is of constant value and that running a budget deficit does not devalue the currency.

I think the value of savings depends on the value of the capital that stands behind it.

The same applies to interest on money. You do not need interest to see the value of your savings increase. If the money supply is constant, and capital increases, then savings with zero interest have a positive return.

[-] 1 points by niphtrique (323) from Sneek, FR 11 years ago

I have taken some time to read the first article. MMT acknowledges some facts most economists do not.

What bothers me is that it does not say anything about charging interest. Interest is the core problem and this should be adressed.

Another thing that bothers me is the "deficits don't matter" issue. If you have savings denominated in the currency, deficits do matter.

Natural Money is a currency with a fixed money supply that does no need any management (no central bank, no government, no money creation by banks).

[-] 1 points by geo (2638) from Concord, NC 11 years ago

Deficits matter to some extent. Not in the manner that neo-classical economics teaches. Read this one and you will hopefully understand the function of the deficit:

http://neweconomicperspectives.org/2012/05/playing-monopolis-monopoly-an-inquiry-into-why-we-are-making-ourselves-so-miserable.html

[-] 0 points by niphtrique (323) from Sneek, FR 11 years ago

The monetary side of the monopoly game ignores the quantity of money. The prices are fixed. I cannot raise or lower prices in monopoly.

In reality an increase of money supply would often increase prices.

This is the weak point in MMT but if you are aware of it then it is no problem.

[-] 2 points by geo (2638) from Concord, NC 11 years ago

In a fiat system Inflation is the biggest risk and MMT recognizes that.

[-] 1 points by niphtrique (323) from Sneek, FR 11 years ago

The problem is that you leave it up to a government (or economists, which may be even worse) to decide whether or not there should be a deficit.

The best thing would be an economic system that works well in itself and requires no management at all.

[-] 2 points by geo (2638) from Concord, NC 11 years ago

No, with a fiat system run under MMT, a deficit is mandatory. It's how the fiat system operates.

"The best thing would be an economic system that works well in itself and requires no management at all."

More free market voodoo? There is no 'invisible hand', no self regulating system.

[-] 1 points by niphtrique (323) from Sneek, FR 11 years ago

I have thought about the deficits being mandatory issue again and it bothers me even more. Deficits are not needed for net savings.

Simplistic example: You bring $100,000 into a savings account. The bank lends it out to a factory owner and he buys a machine. The $100,000 is put into circulation again by buying the machine. After that the machine producer brings the $100,000 into a savings account. The bank lends it out to a factory owner and he buys a machine.

Now you have $200,000 in savings and two machines. MMT is somehow missing this point. You do not need government deficits for private savings because the same money can be put into a savings account again and again.

[-] 1 points by geo (2638) from Concord, NC 11 years ago

You are missing the point... where does the money originate?

Answer: with the federal government. In order for currency to get to the private sector into circulation from the government (the private sector does not create its own currency), the government has to deposit it to generate it. This deposit is a negative for the Federal ledger and a positive for the private ledger.

[-] 1 points by john23 (-272) 11 years ago

no it doesn't have to deposit it...it's computer generated money. Fractional reserves create money out of thin air....the treasury coins hard/real money to enter circulation...an increase in the money supply whether hard or computer doesn't make a difference in the economy...the same inflationary effect occurs.

[-] 1 points by niphtrique (323) from Sneek, FR 11 years ago

It still does not explain the need for government deficits once the money is put into circulation.

My example demonstrates that the government does not need to have a deficit and can even run a surplus, for example to fund pension obligations.

[-] 1 points by geo (2638) from Concord, NC 11 years ago

If money is taken out of circulation to 'pay' the deficit that created the money, you are taking from private savings. Surpluses take even more money out of circulation.

[-] 0 points by niphtrique (323) from Sneek, FR 11 years ago

Running a surplus does not mean that money is taken out of circulation. If the government runs a surplus it can be placed in a savings account, be re-invested and remain in circulation. A government deficit can be paid out of private savings but that does not need the printing of more money.

It is a bizarre idea that you can create or facilitate savings by printing money. The good point of MMT is that it recognises that the government does not need to go into debt because it can print money. Only when the government goes into debt this requires private savings.

The funny thing is that by printing money savings do not increase but only the number of money units. This is called monetary inflation.

[-] 1 points by niphtrique (323) from Sneek, FR 11 years ago

MMT ignores the cookie jar issue and it is a form of socialism. Who is going to decide about deficitits? Informed people will anticipate on the decisions and make a profit at the expense of uninformed people. The real problem is interest on money. On the Natural Money site it is written like this:

The economic problems we face now revive the controversy of Capitalism versus Socialism. Both economic systems have their limitations. Supporters of Capitalism will argue that the problems are caused by government intervention in the markets. Proponents of Socialism will argue that the problems are caused by too little regulation of the markets. Both arguments seem reasonable but they conflict. The spread of poverty caused by the failure of the money system creates the need for new ways of thinking.

The real cause of the problems lies in the nature of our money system in which interest on money is charged. Interest causes wealth to concentrate as the poor pay interest to the rich. Interest can therefore be seen as a tax on poverty to the benefit of the rich. The following example demonstrates this and also that interest on money is unsustainable and leads to crisis:

If someone brought a 1/10 oz gold coin to the bank in the year 1 AD, and the money remained there until the year 2000 AD, collecting a yearly interest of 4%, the amount of gold in the account would have been 3.6 * 10^31 kilogramme of gold weighing 6,000,000 times the complete mass of the Earth.

If interest is charged on a limited scale or over a short timeframe then those problems do not surface. Interest is an insidious process. Over time it is inescapable that it reduces large numbers of people to a state of servitude to the money lenders. This is a long term development that transcends the life span of a human. Interest is the main reason why a number of civilisations have failed and why Western civilisation is about to fail. Therefore all interest is usury and the current financial system is a usury financial system. Interest is also the cause of inflation as more and more money has to be created to keep the economy going.

http://www.naturalmoney.org/full-theory.html

[-] 1 points by geo (2638) from Concord, NC 11 years ago

"Who is going to decide about deficitits?"

The US Constitution answers that.

[-] 1 points by niphtrique (323) from Sneek, FR 11 years ago

The constitution can decide about who but cannot decide about whether or not he or she is wrong or corrupt.

[-] 1 points by geo (2638) from Concord, NC 11 years ago

Your stated question: "Who is going to decide about deficitits?"

I answered it and now you back peddle.

[-] 1 points by niphtrique (323) from Sneek, FR 11 years ago

It was a rhetoric question. If someone decides about deficits (who ever it may be) this person can be corrupt or incompetent. That is why so many people like gold. Gold is a protection against this but it also has its downsides.

[-] 0 points by Umong (0) 11 years ago

The Federal Reserve - the most corrupt institution on earth

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