In reply to Stephen A. Lawrence's message of Fri, 28 Nov 2008 20:51:34 -0500: Hi, [snip] >In short, the books must balance. [snip] >If I recall correctly it's ordinary banks which are "tasked" with >replacing old bank notes with new ones; they send the old ones back to >Treasury where they are (supposed to be) destroyed. This is also a >zero-sum operation ($1 old -> $1 new)
this appears to be contradictory to ... >but I can't tell you anything >about the security of the operation, nor the details of how they assure >that the old notes are really destroyed rather than being siphoned off >to some needy cause in Colombia. > >In economics class, I once asked about "lost" money, dollar bills burned >up in fires or run through the washer and no longer usable. As far as I >could tell from the blurry answer I got, the amount of "destroyed" >currency is so small compared to the rate of money supply growth in >general that it's simply not an issue. The whole system is grossly out >of equilibrium (the money supply grows continuously) ...this. >and probably >couldn't function "in equilibrium" anyway, which is the only time it >would really matter that some funds are simply vanishing each year due >to destroyed currency. > >Unlike all other federal agencies, the Federal Reserve Board is *not* >constrained to running a zero-sum operation. They can actually create >money. They must keep careful track of how much money they create, but >none the less the only constraint on them, as far as I know, is their >good sense (and the threat that if they step out of line Congress and >the President can always fire them). They're not politicians, so they >have more "good sense" than is usual for the White House and Congress, >which is why the system works as well as it does (as always, contrast >with Zimbabwe where the president has direct control of the money supply >-- that approach doesn't typically work as well). > >As I recall, when the Fed has a burning desire to create more money, >they do it by purchasing government securities. In other words, the >Treasury "borrows" money, as usual, by selling bonds, but in this case >they sell the bonds to the Fed, and the Fed uses "magic money" to buy >the bonds. The magic money never existed before the bonds were >purchased, which is what makes it magic. This doesn't make sense if it's the Treasury printing the bills. According to the Wiki article, the Fed uses securities to obtain bills from the Treasury. Now which way around is it? (Or is it both?) ...and if the Wiki is correct, then why are they "Federal Reserve Notes", if they are printed by the Treasury? > If I recall correctly this is >typically done through the "open market desk" and is referred to as an >"open market transaction". As I said, they need to keep track of these >purchases, and in fact someplace in the back pages of the Wall Street >Journal you can (or could, before Fox bought it) find a tally of how >much government debt is "owned" by the Fed. This reads as though a private company creates money out of thin air, which the government then "borrows" perpetually putting the people of the US into debt to the private company, with no real benefit in exchange for the debt. Freely translated, this is highway robbery, on a scale so grand as to dwarf the imagination of Joe Sixpack, thus allowing it to continue indefinitely. That would mean that the US population is in consequence a slave population. Regards, Robin van Spaandonk <[EMAIL PROTECTED]>
