Federal Reserve

[iversonian]

Since Ron Paul's a hot topic nowadays and he talks about abolishing the Fed, let's see where we stand on conspiracy theories.

When the government sells bonds to the Fed for cash, what does the Fed do with the billions it earns in interest on those bonds?

[Mr. Now]

The Fed could have increased liquidty to avert the crash of 1929-- and did not. The Fed created the depression and was likely short equities.

Is Mr. Now much to cynical? Not.

[iversonian]

Point of this thread was, option 2 is correct and you conspiracy nuts have some basic facts wrong. And this is a pretty major basic fact. I originally intended to link to a bunch of websites propagating this myth, but I've since remembered that I'm lazy.

[iversonian]

The motivation behind this was not an anti-Ron Paul one -- I will vote for him myself. I just think he's wrong about the Fed.

[gonebroke2]

[ QUOTE ]
The motivation behind this was not an anti-Ron Paul one -- I will vote for him myself. I just think he's wrong about the Fed.

[/ QUOTE ]

You are clueless. Save your vote, he doesn't want yours.

[iversonian]

Good contribution, gonebroke!

[Taciturn]

My understanding of this isn't very clear.

How is the amount that the Fed returns to the treasury calculated? The Fed can sell the bonds it has obtained with newly created money to other parties (primary dealers or whatever, they're still other parties) - is that accounted for when the Fed returns money to the treasury?

[iversonian]

Here's the first one I found on Google:

http://www.geocities.com/CapitolHill...flaherty7.html

My original inspiration for the question was from reading a text on Banking by Mishkin, though I can't produce an online link for you to examine.

[Copernicus]

[ QUOTE ]
My understanding of this isn't very clear.

How is the amount that the Fed returns to the treasury calculated? The Fed can sell the bonds it has obtained with newly created money to other parties (primary dealers or whatever, they're still other parties) - is that accounted for when the Fed returns money to the treasury?

[/ QUOTE ]

The Fed almost never sells bonds, since that would decrease the money supply. However, all of its net earnings are paid to the Treasury. It retains operating capital and sweeps the rest out.

[ShakeZula06]

[ QUOTE ]
Point of this thread was, option 2 is correct

[/ QUOTE ]
Can you at least give a cite?