Forum Post: Printing Presses, Part II

Oh, hello! It's me again, "Ben Bernanke"! I'm back to follow-up on my first post ( http://occupywallst.org/forum/printing-presses/ ) of telling you more about my job.

There is one thing I forget to mention about my bosses and our big bank, The Federal Reserve. See, my bosses loan money to the US government, too. Not just to other, smaller banks around the country but to Congress itself. We loan that money to them at a particular interest rate.

Now, I imagine that some people will say: Wait a second! How is Congress going to pay back a loan? Aren't they busy writing laws?

Well, I can tell you how they do it. For one, the politicians who get elected to offices in government are usually given money, by their supporters, to campaign around their state, or around the country, to get even more votes. So those candidates can often times collect quite a bit of donations, in dollars. The other way that the Congress can pay back their loan, from my bosses, is to take a little bit of money from every transaction that people engage in, around the entire country. In 1913, the US government put into its Constitution the power to tax people on their income. So if you plant a tree somewhere, grow apples and then sell that apple to another person, Congress has "an arm of the government called the IRS" and the IRS will require that you pay a percentage of that money you just earned, to them. So with these sources of income, the people in Congress are usually able to pay back their loan on the money we printed for them.

The other thing I should mention to you about the IRS is that they also have "the practice of bartering" written into their rule books. Since dollars are not used in bartering, it was important for Congress to not miss out on the opportunity to get involved in those types of transactions. So if you just trade that apple you grew, to another person, in an exchange for an orange that they grew... you will still be expected to pay an income tax, in dollars, on that trade.

... more later ...