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Thread: Where are all the money coming from?

  1. #1 Where are all the money coming from? 
    Forum Junior newnothing's Avatar
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    Almost every country is facing an economic crisis of some sort. Governments are responding to the economic crisis or potential economic recession by pumping in millions or billions of dollars into mega projects to extend life support to their economy. Japan just announced their highest budget yet, Indonesia mulls over pouring in hundreds of million dollars for infrastructure projects and have started to tender projects in bid to soften the economic blow. My question is: If half the world is pumping out billions or trillions of dollars into their own economy, wouldn't that be like pulling a rabbit out of a magician's hat? Where is all the money coming from?

    From history we know that there is peak and slump cycle in the economy, but as decades and centuries goes by, it seems to get bigger and bigger. Would it end in a global economic meltdown?


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    Forum Masters Degree samcdkey's Avatar
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    My question is: If half the world is pumping out billions or trillions of dollars into their own economy, wouldn't that be like pulling a rabbit out of a magician's hat? Where is all the money coming from?
    The printing press, i.e. the government makes the money it needs- this expands the relative amount of money in the economy and will cause reciprocal inflation, but is preferable to deflation, which happens when no one lends or borrows, bringing business to a standstill and leading to a deep recession or worse, depression.

    I think giving the money to corporations and banks is a serious mistake. They should give the money to the people instead. Being the Christmas season, a few thousand dollars sent to every home would have seen a vast spending spree in the market, not to mention giving everyone a nice Happy Christmas. But that would be socialism .


    So instead, they gave it those who have profit margins as an index of success, which is why Citibank is using their American bailout money to build highways in Spain. Thats good for Citibank, but won't bring any jobs or products to the US markets.

    Would it end in a global economic meltdown?
    I doubt it, eventually all these smart people will realise that there is no market when the "common" people are broke. Hopefully, before it reaches a point of beheading the bourgeoisie.


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  4. #3  
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    Quote Originally Posted by samcdkey
    The printing press, i.e. the government makes the money it needs- this expands the relative amount of money in the economy and will cause reciprocal inflation,
    The United States government does not "print" its own money as you would think. If you'd like me to explain the monetary process in America, please ask.

    but is preferable to deflation, which happens when no one lends or borrows, bringing business to a standstill and leading to a deep recession or worse, depression.
    Deflation, at its root, is a decrease in the overall money supply, which is responsible for a variety of setbacks you mentioned. Expansion has often lead to contraction, as the Federal Reserve's methods for creating money can easily be reversed to extinguish it. When the Federal Reserve sells bonds or other debt instruments, the overall money supply shrinks, which causes deflationary periods.

    They should give the money to the people instead. Being the Christmas season, a few thousand dollars sent to every home would have seen a vast spending spree in the market, not to mention giving everyone a nice Happy Christmas. But that would be socialism
    What would giving money to "the people" accomplish? It would simply flood the economy with worthless money, and hurt the dollar's purchasing power even further. If you think the solution to handouts is even more handouts, then you need to reevaluate your priorities. These bailouts (which have been steadily increasing since the 1970s) are indeed indicative of socialism, which is clearly destroying America.
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  5. #4  
    Forum Masters Degree samcdkey's Avatar
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    Ideally, of course, they should let the industries collapse, since that is what capitalism entails. But if they are giving handouts, I would rather they give it to the people, since the poor people are more likely to spend it than those who get better profit margins elsewhere.

    The United States government does not "print" its own money as you would think. If you'd like me to explain the monetary process in America, please ask.
    Sure, whats the source of the $4.6165 trillion dollars in bailout money being given out so capriciously?
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    Sure, whats the source of the $4.6165 trillion dollars in bailout money being given out so capriciously?
    It all starts with government debt!

    Before I say anything else, though, I will mention something you probably already know: the money which is eventually created has no backing, therefore it is virtually worthless. There is no way over four and a half trillion dollars could ever be introduced to the economy as hard money. Anyway, back to my explanation.

    The United States government creates bonds and Treasury notes, which are, in Layman's terms, IOUs. It's simply a promise to pay a certain amount of money at a specified interest on a specified date. Converting these IOUs into paper bills and checkbook money is the Federal Reserve's job (which is not, contrary to popular belief, a branch of the government; it is, in fact, a private institution with virtually no oversight, owned by private stockholders, who themselves manage private banks worldwide). Still with me?

    The Federal Reserve uses the government debt as an asset, based on the assumption that the government will keep its promise to pay (which it pays by issuing unconstitutional taxes). Using these assets, the Federal Reserve can offset its liabilities. It creates liabilities by issuing "Federal Reserve Checks" to the government in exchange for the aforementioned assets. The Federal Reserve checks are not covered by actual money. When the government receives the Federal Reserve checks, they are endorsed and sent back, this time called government deposits. Once the Federal Reserve checks are deposited into the government, they are used to pay government expenses and become government checks. These checks flood the economy, and they eventually end up as commercial bank deposits. The banks use the new deposits as assets and label them bank reserves via fractional-reserve banking. These reserves finally become bank loans, and they are multiplied and sent back into the economy. And so, the cycle continues!

    As you can see, the process of creating money depends on the Federal Reserve's willingness to buy government bonds and Treasury notes. Why doesn't the government create its own money? Well, it could, but what good would that be under a fiat system? The money would still have no value. The last attempt by the government to create its own fiat money was John F. Kennedy's silverbacks, which were quite similar to Lincoln's greenbacks.

    I hope this explanation helped!
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  7. #6  
    Forum Masters Degree samcdkey's Avatar
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    Can the Federal Reserve create money independently of the government? ie. can it do whatever it wants regardless of government oversight? Can they refuse the government, for instance by refusing to buy US treasury notes or bonds or refusing to write out checks for worthless money?
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  8. #7  
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    Can the Federal Reserve create money independently of the government? ie. can it do whatever it wants regardless of government oversight?
    The entire monetary system in America (and to be fair, many other countries as well) is based on debt. The Federal Reserve creates money based on the government's debt. The two require each other in order for the process of creating money to be fluent, but as you can well imagine, the Federal Reserve assumes the more dominant and rewarding role. Regarding oversight, there is virtually none. The profits of the Federal Reserve mainly go to paying shareholder dividends, even though they should be going to the U.S. Treasury.

    Can they refuse the government, for instance by refusing to buy US treasury notes or bonds or refusing to write out checks for worthless money?
    They sure can, but why would they want to do that? They simply sit there twiddling their thumbs, collecting interest on bonds they purchased with paper they created. What an ingenious system! For the owners, that is. Alternatively, the bonds can be sold to regular taxpayers or to foreigners, which is often done to counter inflation. This act counters inflation because the bonds are purchased with money which is already in existence. To do this, however, the bonds must have high interest rates in order to attract the private sector, which will simply haunt the government (and subsequently, the taxpayers) further down the road.

    By the way, you ask good questions.
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    Forum Masters Degree samcdkey's Avatar
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    Thanks.

    So what would happen if [hypothetically] those who owned the largest amount of US debts e.g. the Chinese, decided to call it in?
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  10. #9  
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    Quote Originally Posted by samcdkey
    Thanks.

    So what would happen if [hypothetically] those who owned the largest amount of US debts e.g. the Chinese, decided to call it in?
    Well, they can't simply demand the debt be paid: what they would have to do is sell the bonds they previously purchased. If the Chinese dumped the bonds onto the market, their prices would drop, meaning they themselves would lose a lot of money. In the U.S., interest rates would sharply rise, and the dollar would lose value.

    Some people describe this relationship as, "Owing the bank $100 is my problem, but owing the bank $1 million becomes the bank’s problem".
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  11. #10  
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    I mean what would happen to the Federal Reserve? What would their role be? Whats their buttress against losses? Do they declare "bankruptcy"?

    Also the Chinese have a lot of gold, wouldn't that offset their dollar losses if they dumped the bonds?
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  12. #11  
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    I mean what would happen to the Federal Reserve? What would their role be? Whats their buttress against losses? Do they declare "bankruptcy"?
    The Federal Reserve doesn't declare "bankruptcy", nor does it ever suffer significant losses. The simple explanation for this phenomenon is that the Federal Reserve's own incompetence is suffered by the taxpayers; that is, American workers end up paying the hidden tax called inflation whenever the Federal Reserve needs fresh money to cover its inevitable losses. This often takes on the appearance of rising prices for goods, which erroneously shifts the blame from the Federal Reserve to "greedy businessmen" and "rampant capitalism". Of course, the price of goods isn't rising at all; what is happening is, the consumers are losing purchasing power via inflation, which occurs when the Federal Reserve decides to buy bonds dishonestly (dishonest in the sense that the "money" they use to buy them isn't really money at all - it is, instead, a check with no backing). Only the Federal Reserve is allowed to purchase government bonds for virtually nothing; any other person or organization would soon find itself behind bars.

    One of the main focuses of the secret meeting at J.P. Morgan's private resort on Jekyll island (off the coast of Georgia) was to find a way to shift the cartel's losses (and the Federal Reserve is exactly that - a cartel) from the owners to the American people. Whenever the money for bailout is needed, the Federal Reserve creates the money, acting as a "lender of last resort". When the new money floods the economy, though, the consumers are hit with inflation. The Federal Reserve is impervious to recessions, depressions, etc., which is why they have gone about unscathed through various panics, recessions, and depressions since 1913. When they feel the economy needs money, they get to work creating it; when they think there is too much money, they increase interest rates on all new currency and (probably) lower fractional-reserve ratios for commercial banks. Between cycles of expansion and contraction of the money supply (which the Federal Reserve dictates), booms, busts, and depressions take root.

    Long story short, losses are simply covered by worthless fiat money, which the Federal Reserve has the power to create and regulate. The subsequent damage on the dollar is endured by regular citizens who work and save their money. The government simply goes deeper and deeper into debt.

    Also the Chinese have a lot of gold, wouldn't that offset their dollar losses if they dumped the bonds?
    I am not exactly sure how much gold the Chinese have, and I'm a little uncertain as to what role it would play in such a situation. I will have to think this question through another time.

    Rereading my post, it seems I have gone slightly off topic. I tend to do that, so I apologize!
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  13. #12  
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    The simple explanation for this phenomenon is that the Federal Reserve's own incompetence is suffered by the taxpayers; that is, American workers end up paying the hidden tax called inflation whenever the Federal Reserve needs fresh money to cover its inevitable losses.

    So basically, the people pay when there is a problem and the greedy businessmen take the profits when all is hunky dory. Nice. :?

    losses are simply covered by worthless fiat money,
    And since they do it every time the government needs it, how is that different from the government printing money? Doesn't having the FedRes just add an additional step? Does the President have any authority over the Federal Reserve?

    I am not exactly sure how much gold the Chinese have
    Here is what I read:

    China’s fears about the long-term viability of parking most of its reserves in US government bonds were triggered by Treasury Secretary Henry Paulson’s US$700 billion (HK$5.46 trillion) bailout plan, which may make the US budget deficit balloon to well over US$1 trillion this fiscal year.

    The US government will fund the bailout by printing new money or issuing huge amounts of new debt, either of which will put severe pressure on the value of the greenback and on government bond yields.

    The United States holds 8,133.5 tonnes of gold reserves valued at US$188.23 billion. China holds gold reserves of just 600 tonnes, worth only US$13.89 billion.

    Beijing’s reserves could easily go up to 3,000 to 4,000 tonnes, Tanrich Futures senior vice president Colleen Chow Yin-shan said.

    Until now the United States has had little choice but to issue massive amounts of debt to fund its deficits, and China has had little choice but to purchase it, as there are not many markets deep enough to absorb the mainland’s US$30 billion to US$40 billion in monthly capital inflows.

    Government officials involved in the management of China’s reserves are beginning to see gold as an attractive place to park some of these funds. They see it as a real, tangible asset that will not lose its value over time — in stark contrast to the greenback, which is becoming more disconnected from economic realities as more bills are printed.

    http://www.thestandard.com.hk/news_d...716&con_type=1
    I tend to do that, so I apologize!
    I'm worse than you, nn to apologise, though the OP may have something to say![/quote]
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  14. #13  
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    The other question no one in the media is asking is where did all that money(losses) go?

    Which brings me to an aspect virtually no one is considering is that government printed money/currency accounts for about less than 10% of the money in circulation. Because of the fractional reserve system, most of the money is created from debt/credit by being loaned out several times over and not being "Printed".

    If we were dealing with actual money being lost, someone else would have it because it doesnt evaporate but is transfered. But money from debt is another story in that a default on a loan means that money vanishes, it no longer exists.

    There will only be inflationay pressure by the 'printing' of money when that amount exceeds the amount that is being destroyed by defaults on derivatives etc

    The video Money as Debt is worth watching for an alternate perspective on money
    http://www.youtube.com/watch?v=vVkFb26u9g8
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  15. #14  
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    And since they do it every time the government needs it, how is that different from the government printing money?
    If the government were to print its own money, it would be done so in an interest-free manner, much like Kennedy's silverbacks. Under the Federal Reserve System, the government goes further and further into debt whenever new money is created, be it paper currency or data on computer chips. The difference between the government printing its own money and relying on the Federal Reserve is massive. If the government printed its own money, it would not have to go into debt simply to create money; under the current system, of course, the Federal Reserve creates money from the government's pledged debt and profits greatly from it (when I say greatly, I mean money on a scale you couldn't imagine). The downfall, of course, is that even if the government printed its own money as opposed to the Federal Reserve doing so, the hidden tax called inflation would still be the same, as would the damage done to the dollar. The biggest difference is that the government would not face such insurmountable debt (meaning America's tax-dollars would go to health and infrastructure instead of paying the interest rates on the national debt), and it would certainly be more sovereign. As it stands, many people rightfully believe the Federal Reserve has usurped the government, if for no other reason than its total domination over the American economy and its commerce.

    Doesn't having the FedRes just add an additional step?
    What you're getting at is, "the Federal Reserve sounds completely unnecessary!"

    And I agree! It is. That being said, removing the Federal Reserve and allowing the government to create its own money will not solve many of America's problems. The main difference will be who benefits: instead of private shareholders and private bank heads, it will be various government officials. Some describe this as a "same shit, different asshole" situation.

    How can the situation be reversed, you ask? Well, you're likely to get many different answers for that question, but since you've been so kind listening to me this whole time, I figured voicing another opinion of mine wouldn't be unwelcome. The most important step that needs to be taken is a return to sound money principles. Fiat money needs to be abolished, and the gold or silver (not both) standard reestablished. Before that happens, though, a lot of controversial legislation must be passed. Unfortunately, I do not believe Congress has the intelligence to understand the dynamic of the Federal Reserve and its unnecessary burdens.

    Does the President have any authority over the Federal Reserve?
    The President, to my knowledge, has the power to choose who is Chairman, and perhaps a few other positions. Of course, that is not very useful, although it does create a false sense of oversight and government power. It matters not who fills in the vacant seats; it matters what those seats have the power to do.

    Perhaps the scariest aspect of the Federal Reserve is that very few people understand how it works. When the public, by and large, believes the commerce of America to be supplied and regulated by the government, the wrong people end up being blamed for the nation's economic troubles. It is doubly unnerving when most individuals believe banks lend money they already have. Why don't the schools cover any of these major issues? That is a separate discussion entirely.

    By the way, are you American? If you'd like to learn more about the Federal Reserve and the history of America's banking cartels, I can recommend a fabulous book. I can only type so much!
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  16. #15  
    Forum Masters Degree samcdkey's Avatar
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    By the way, are you American? If you'd like to learn more about the Federal Reserve and the history of America's banking cartels, I can recommend a fabulous book. I can only type so much!
    No, I am from India. I would love a book recommendation, thanks.

    [though I admit, its so much nicer to have your specific questions answered. Thank you for your patience ]
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  17. #16  
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    No, I am from India. I would love a book recommendation, thanks.
    I've read many books which cover the Federal Reserve System, but none have come close in terms of readability and information to The Creature from Jekyll Island by G. Edward Griffin. In addition to outlining the Federal Reserve's history (which is, as Griffin describes it, the most secretive operation in all of history), the book describes many fraudulent modern banking practices as well, in addition to covering lots of history which helps the reader fully understand the Federal Reserve's purpose and power. In terms of difficulty, I would recommend it for anybody, mainly because Griffin does a fantastic job conveying his message in an understandable fashion. Although the cover says "A second look at the Federal Reserve", many other topics are covered as well, and for good reason (it's a 600 page behemoth).

    If this book doesn't change your outlook on life, then you're probably a robot!

    [though I admit, its so much nicer to have your specific questions answered. Thank you for your patience ]
    My pleasure! For what it's worth, everything I have typed in this thread can be found in better detail in The Creature from Jekyll Island.

    And before you ask: no, I am not being paid by Griffin to praise his book. It's just that good!
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  18. #17  
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    Thanks for the recommendation
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  19. #18  
    Forum Junior newnothing's Avatar
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    [quote="The Pride"]
    The Federal Reserve checks are not covered by actual money. When the government receives the Federal Reserve checks, they are endorsed and sent back, this time called government deposits. Once the Federal Reserve checks are deposited into the government, they are used to pay government expenses and become government checks. These checks flood the economy, and they eventually end up as commercial bank deposits. The banks use the new deposits as assets and label them bank reserves via fractional-reserve banking. These reserves finally become bank loans, and they are multiplied and sent back into the economy. And so, the cycle continues!
    So there is no actual money printed per se. But as the cycle keeps repeating itself, it seems to keep snowballing. Now it seems the whole world is in an economic crisis. I don't see a solution to this.
    ~ One’s ultimate perfection depends on the development of all the members of society ~ Kabbalah
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  20. #19  
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    samcdkey

    Thanks for the recommendation
    Any time!


    newnothing

    ... Now it seems the whole world is in an economic crisis. I don't see a solution to this (emphasis mine).
    If the ship that is central banking and fiat money continue their self-serving course unhindered, then neither do I. It will take the combined efforts of a concerted group of wise men to set sink the titanic efforts of globalists worldwide. In order for the road of economic prosperity and stability to be rediscovered, globalist institutions such as the World Bank and IMF must be disassembled as a starting point. I cannot stress how many unindustrialized nations worldwide are hopelessly indebted to the IMF, and how many of them spend their scarce money on paying the interest rates on these loans (loans which were never expected to be repaid) instead of feeding and clothing their people. What many people must also realize is the inevitably of war with baseless money: without a fiat monetary system, most modern wars would never have occurred. It is elastic money which has enabled the majority of nations to finance wars against each other; the sooner this fact is realized, the sooner the dangers of paper money will be abolished.
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  21. #20 [b] Where is all the Money Coming From? 
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    I have always wondered about this, so all of your posts gave me great information![/b]
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  22. #21  
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    Yes thank you. Your explanation about the monetary system is very informative.
    ~ One’s ultimate perfection depends on the development of all the members of society ~ Kabbalah
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