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#31
02-17-2007, 12:11 PM
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Re: Could Someone Please Explain the Money Supply?
[ QUOTE ]
The Federal Reserve is the only corporation that is allowed to print american dollar bills though, right? [/ QUOTE ] Yeah, since it is a bill that tells you that you have a claim vs. the Federal Reserve [img]/images/graemlins/smile.gif[/img], a claim for ehhhh nothing [img]/images/graemlins/smile.gif[/img] (I am not completely sure if the Federal Reserve has given the authority to any other institutions or companies btw). Btw, several banks are allowed to print Euro and British Pound but that doesn't really change anything in this regard since there is still a central body that controls the money supply. 
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#32
02-17-2007, 01:09 PM
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Re: Could Someone Please Explain the Money Supply?
[ QUOTE ]
[ QUOTE ] But remember, inflation applies to prices and wages. So a little inflation is a good thing, but too much is a very bad thing. [/ QUOTE ] No amount of inflation is ever a good thing. Inflation only doesn't affect you if you spend your wages immediately, or get paid with some other good (kinda the same thing). If, however, you want to save some money (which is perfectly rational), then any amount of inflation is a bad thing. [/ QUOTE ] How do you think your savings grow? They grow because a large part of them will be loaned out at a profit by the bank. Part of this profit is returned to you as interest on your savings. Whilst these loans lead to inflation, they also lead to an actual increase in the numerical value of your savings, which normally outstrips any devaluation due to inflation. If there was inflation of 0% you would only get about close to 0% interest on any savings.
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#33
02-17-2007, 01:38 PM
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Re: Could Someone Please Explain the Money Supply?
[ QUOTE ]
If there was inflation of 0% you would only get about close to 0% interest on any savings. [/ QUOTE ] Ugh, you would still get interest, inflation is only a component of the interest, even with small deflation you can get interest. This is founded in human psychology and the value of capital, and do not need inflation to exist.
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#34
05-27-2007, 12:46 AM
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Re: Could Someone Please Explain the Money Supply?
I've been trying to get a better understanding of this myself.
What are the specifics of the transfer of money from the FED to the US gov't? Is this what open market operations are? As I understand it, the FED gives the US gov't currency in exchange for some kind of gov't security like a bond... is this correct? am I way off?
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#35
05-27-2007, 01:27 AM
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Re: Could Someone Please Explain the Money Supply?
[ QUOTE ]
I've been trying to get a better understanding of this myself. What are the specifics of the transfer of money from the FED to the US gov't? Is this what open market operations are? As I understand it, the FED gives the US gov't currency in exchange for some kind of gov't security like a bond... is this correct? am I way off? [/ QUOTE ] IIUC (if i understand correctly) the fed essentially buy government bonds via banks. The gov produces the bonds, the bank then sells them to the fed. The fed deposits the money in the bank, which can then loan out 10x (or whatever the ratio is now) the money thanks to FRB.
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#36
05-27-2007, 01:56 AM
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Re: Could Someone Please Explain the Money Supply?
[ QUOTE ]
[ QUOTE ] I've been trying to get a better understanding of this myself. What are the specifics of the transfer of money from the FED to the US gov't? Is this what open market operations are? As I understand it, the FED gives the US gov't currency in exchange for some kind of gov't security like a bond... is this correct? am I way off? [/ QUOTE ] IIUC (if i understand correctly) the fed essentially buy government bonds via banks. The gov produces the bonds, the bank then sells them to the fed. The fed deposits the money in the bank, which can then loan out 10x (or whatever the ratio is now) the money thanks to FRB. [/ QUOTE ] Still not clear to me. Are you saying that the gov't gets its seigniorage money via bonds sold to various banks which then 'sell' these bonds to the FED itself?
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#37
05-27-2007, 02:02 AM
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Re: Could Someone Please Explain the Money Supply?
[ QUOTE ]
[ QUOTE ] [ QUOTE ] I've been trying to get a better understanding of this myself. What are the specifics of the transfer of money from the FED to the US gov't? Is this what open market operations are? As I understand it, the FED gives the US gov't currency in exchange for some kind of gov't security like a bond... is this correct? am I way off? [/ QUOTE ] IIUC (if i understand correctly) the fed essentially buy government bonds via banks. The gov produces the bonds, the bank then sells them to the fed. The fed deposits the money in the bank, which can then loan out 10x (or whatever the ratio is now) the money thanks to FRB. [/ QUOTE ] Still not clear to me. Are you saying that the gov't gets its seigniorage money via bonds sold to various banks which then 'sell' these bonds to the FED itself? [/ QUOTE ] I would suggest watching the last video linked by Neilso. Its 40 mins long, but you can skip the first ~17 min to get to the creation of the fed.
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#38
05-27-2007, 02:26 AM
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Re: Could Someone Please Explain the Money Supply?
[ QUOTE ]
I've been trying to get a better understanding of this myself. What are the specifics of the transfer of money from the FED to the US gov't? Is this what open market operations are? As I understand it, the FED gives the US gov't currency in exchange for some kind of gov't security like a bond... is this correct? am I way off? [/ QUOTE ] the Fed doesnt "transfer money" to the government. The government either gets its money from taxation or by selling Treasury bonds/bills/notes etc (just call them bonds). The Fed controls money supply by buying Treasury bonds with newly created money (increasing the money supply) or selling bonds it already owns (decreasing the money supply because the cash used to buy them reduces the buyers cash reserves and the fed holds the cash back). Shorter term money supply changes are controlled by repurchase agreements, which are overnight or longer term (up to 2 months or so) loans that use Treasury issues as collateral. Those deals are with banks (or other "primary dealers"), though, not directly with the Government.
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#39
05-27-2007, 03:30 AM
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Re: Could Someone Please Explain the Money Supply?
[ QUOTE ]
[ QUOTE ] I've been trying to get a better understanding of this myself. What are the specifics of the transfer of money from the FED to the US gov't? Is this what open market operations are? As I understand it, the FED gives the US gov't currency in exchange for some kind of gov't security like a bond... is this correct? am I way off? [/ QUOTE ] the Fed doesnt "transfer money" to the government. The government either gets its money from taxation or by selling Treasury bonds/bills/notes etc (just call them bonds). The Fed controls money supply by buying Treasury bonds with newly created money (increasing the money supply) or selling bonds it already owns (decreasing the money supply because the cash used to buy them reduces the buyers cash reserves and the fed holds the cash back). Shorter term money supply changes are controlled by repurchase agreements, which are overnight or longer term (up to 2 months or so) loans that use Treasury issues as collateral. Those deals are with banks (or other "primary dealers"), though, not directly with the Government. [/ QUOTE ] Ok. So, when the Fed increases the money supply by buying Treasury bonds with newly created money, what has it given as consideration for those bonds? anything?
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#40
05-27-2007, 03:43 AM
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Re: Could Someone Please Explain the Money Supply?
[ QUOTE ]
[ QUOTE ] [ QUOTE ] I've been trying to get a better understanding of this myself. What are the specifics of the transfer of money from the FED to the US gov't? Is this what open market operations are? As I understand it, the FED gives the US gov't currency in exchange for some kind of gov't security like a bond... is this correct? am I way off? [/ QUOTE ] the Fed doesnt "transfer money" to the government. The government either gets its money from taxation or by selling Treasury bonds/bills/notes etc (just call them bonds). The Fed controls money supply by buying Treasury bonds with newly created money (increasing the money supply) or selling bonds it already owns (decreasing the money supply because the cash used to buy them reduces the buyers cash reserves and the fed holds the cash back). Shorter term money supply changes are controlled by repurchase agreements, which are overnight or longer term (up to 2 months or so) loans that use Treasury issues as collateral. Those deals are with banks (or other "primary dealers"), though, not directly with the Government. [/ QUOTE ] Ok. So, when the Fed increases the money supply by buying Treasury bonds with newly created money, what has it given as consideration for those bonds? anything? [/ QUOTE ] Im not sure what your question is. The consideration is the newly created money, which has the full backing of the US and the same value as any other dollars.
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