All About Money (creating it out of thin air...the Fed)

[mom cat]

FISCAL ANALYSIS:
All About Money
by Fred Cederholm

By printing currency, loosening credit, and "buying" government securities, the Fed has "created" $2,033,800,000,000 additional dollars for Uncle $ugar--in three and a half years!

I've been thinking about the US dollar, the M3 money supply, reserve currencies, OPEC, Saddam, and petrodollars. There is so much more to the story behind our money than what bucks we each have, what bucks we spend, what bucks are out there, and how those bucks are used/valued by the global financial community.
Our currency is "created" through the Federal Reserve Banking System of the United States. The Fed does this both by actually printing paper bills, and through manipulation of monetary policy--the expansion and contraction of credit/lending requirements. It also increases the money supply--putting more money in the hands of the "public"--by buying government securities in the market.

As strange as it sounds, the Federal Reserve pays for these by virtually creating the money out of thin air and transferring it to those people/entities selling the securities! There is no longer anything tangible behind the Federal Reserve Note--no links to gold or silver since 1971--only the full faith and "credit" of the United States of America.

Money supply is defined in terms of "M's." The M1 refers to the printed currency and all deposits in checking accounts (demand deposits), and unredeemed/outstanding travelers checks. The M2 picks up the M1 components plus all time-related deposits--savings deposits, small CD's and non-institutional money market funds. The M3 picks up the M2 components plus all large time deposits, institutional money-market funds, short-term repurchase agreements, along with eurodollar holdings.

In January 2001, the M3 stood at $7,249,900,000,000; at the end of June 2004 the M3 stood at $9,283,700,000,000. By printing currency, loosening credit, and "buying" government securities, the Fed has "created" $2,033,800,000,000 additional dollars for Uncle $ugar--in three and a half years!

http://baltimorechronicle.com/082004FredCederholm.shtml

[Maple]

1. Everytime the price of gold is up

somebody flogs it on chatsites, citing money created 'out of thin air'

Currency value is based on the GDP, not gold. And it never will be based on gold again.

[leftyandproud]

2. money is created out of thin air..

It is the only way to satisfy the appetite of our politicians for spending...If they are limited by something tangible, they will be forced to cut back and balance the budget. Otherwise, print print print...kazaam! Free money to spend...Meanwhile the price of everything rises...inflation...just another tax.