It seems like people often use the "print out of thin air" as a simplification of a more complex way that essentially boils down to the government printing money. Others have argued that the the goverment doesnt print money and its an oversimplification.

Could someone please describe the actual mechanisms the government uses to control the interest rates? Is the money printed? Is it added to a computer? Are bonds printed? I think this needs to be cleared up.

Do you actually not know or are you trying to get it more out in the open?

Generally, it's just shorthand for a far more complex process. Of course, the government does actually print the monetary base.

The real process goes something like this: the Federal Reserve creates reserves (out of the ether) and credits them to the commerical banks' accounts. Then the commercial banks pyramid credit on top of the increased reserves by making loans.

Link?

Where did it come from?

Technically the Fed buys government securities from the commercial banks through preferred brokers to inject the increased reserves.

See, for example, http://mises.org/story/2676:

Or just google on something like "Federal Reserve open market operations."

And how exactly does this show money created out of the ether

Where did it come from?[/QUOTE]

I'll listen to it tomorrow. But to save me another post, LOL.

Is this a joke?

is that a rebuttal?

yep

and the green stuff there... yes, sometimes the government literally prints some money but for the most part it's just a metaphor

I was serious. I couldn't tell if you were joking. If you weren't, then yes, the graph illustrates how money is created "from the ether." Its supply is increasing. It is unbacked by any physical commodity. The increase in the supply comes from electronic bookkeeping entries.

Yes, the Federal Reserve pays the US Treasury a small printing fee to create the physical currency.

Is it fair to say that the Fed either prints (including digitally "prints") the money it creates directly or promises to print the money at some time in the future? Is there any other option?

OP watch this.
http://video.google.com/videoplay?do...74362583451279

It really doesn't. Just because you can't see or touch it all doesn't mean it's not real.

The Fed creates debt. That's all fiat currency is, all your dollar promises to be, good for all debts. This debt is handed to private banks at a low interest rate and they lend it out at a high interest rate. The magic of fractional reserve banking multiplies this debt and the bank lends out ten times the amount originally handed them. There is no need for anything to be printed. The Fed simply adds an amount to the account of whichever bank.

When the bank lends out ten times the amount of money credited to them, all of it is placed on the books as an asset. How this is an asset I have no idea, since it never existed. Banks project stability with huge marble columns and weasels in expensive suits and huge vaults in order to seem like a place with money where you can be safe. In reality, even the best bank is broke ten times over. If you made $1,000 and lent out $10,000 would you have ten times as much money? No, you'd be bankrupt.

superleeds,

can you explain inflation?

You are mistaken. How is it an asset? Because the money is owed to them. If you had $100k under your mattress, and then lent it to an almost certainly reliable friend at 5% interest for a year, and now you have no money under your mattres, would u now consider yourself broke, because u have no money, or do you have a 100k asset known as a performing loan? I would definitely lean to the latter when doing my personal bookkeeping. That is no different than banks.

I have issues with the Fed, and FDIC, but because it is a govt backed monopoly, not because fractional reserve banking is inherently wrong. The bank is simply acting as a middle man between a lender(the depositor) and a borrower, and taking a cut. His cut is too high you say? Fine then open another bank with lower fees, oh wait u can't without Fed approval (now that is the crutch of the problem, not fractional reserve banking)

He didn't say it's "not real".

poker879,

You're right of course that fractional reserve banking is a separate but intricately issue, as the whole idea of the Fed is to enrich the banking cartel. But to nail down the thought, if I took the $100k under my mattress and lent it out, that would be an asset. If I then lent out another $900k that I didn't have, it would be a liability under any sane definition.

so they're actually doing sane accounting at the big banks nowadays?

K, I guess this is the part that im most interested in. Securities are just loans right? Are the securities that the fed sells different than the ones it buys? It seems like it would inject money by buying securities from the banks, but then wouldnt be able to sell more than it had bought. This would seem like the monetary base is never gonna go below its initial value before all this buying and selling started.

Also, When the Fed buys securities the money it buys them with is created out of nothing right? Either on a computer or with the printing press.

No it would be a crime. If on the other hand you could convince someone who did have 900K to guarantee that you are good for the loan should it go sour (i.e they will honor the loan) you'd be a bank. And when the loan is repayed (either by the borrower or by your guarantor) you have the same 100K under the mattress. Banks just complicate it with interest. Bastards.

So? That has nothing to do with the fact that the Fed creates money by mere bookkeeping entries.

There's your problem. The institution making the guarantee does not, in fact, have the money. They only promise to make the debt good by either borrowing the money to cover it, or, if they cannot secure such a loan, by creating it ex nihilo.