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What's the deal with the fed?; I keep bumping up with vague theories
Topic Started: Oct 28 2008, 05:52 AM (894 Views)
mynameis
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FreeCriticalThinker
Oct 30 2008, 08:36 AM
Mynameis, I think you are moving further from the topic with each post. Still your opinions are very interesting and, at the sake of derailing this thread, I'm pleased to have and continue this discussion with you. Before I start replying to your latest post, I'd like to know if we are clear with the issue you raised your previous ones: lending and borrowing existed way before the fed and so did forward contracts. There is one point I would like you to clarify tho, it's the one about "fictional 1's and 0's" as I still don't know for sure what you meant by that.

Moving on to your last post ...

First I have to point out that none of the issues you raise are dependent on the Federal Reserve, for example you talk about taxation on the poor as a, supposed, result of the government incurring into debt. Both of these actions are particular to fiscal policy (the government finances less than 3% of its deficit through seigniorage), but since your points interest me I would like to answer to them anyway. And yes, mr freedom suggested in his first post that the monetary system takes away money from the majority and puts into the pockets of the wealthy.

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The poor are taxed by government for a debt that is becoming a greater excess in the interest than the principal amounts owed.


The poor, and everybody else, are taxed not only to pay for debt. In fact, debt service only accounts for less than 20% of the government expenditures. Your figures don't match the reality, interest payments servicing the debt are around 400 billion US$ which would be approx. 4% of the total debt (the principal as you referred to it), which is far from being even close to the total amount the government owes and even further from your assertion that the interest is becoming greater than the principal. On a final note, while the debt has been rising, tax brackets and rates for the income tax and VAT (the ones that affect the poor the most) have not grown at the same pace.

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Publically owned assets by the government can easily become privatized or nationalized on these schemes depending on which way the wind blows in the party leader's direction.


I think you made a typo, public assets are already nationalized.

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When the largest income earners do not pay taxes equal to the poor, the process only accelerates.


What do you mean by this? Shouldn't you pay a larger fraction of your income as it grows?

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Those banks who already earned and have back up currency in other monetary denominations can buy up cheap public goods at bargain pricing, thus cheating the public twice.


You are assuming that banks are going to incur in transaction costs and the risk of liquidity. That does not happen very often, and banks usually don't "buy" public goods as one of the main characteristics of public goods is the fact that they are provided by the government and not bought in an open market.

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This latest bailout is another example of these practices at work.


I fail to see how, would you mind explaining a bit more?
I am not moving away from any post. All these are behaviors exhibited by those with whom the FED banks operate. Taxes fund the debt run up by the FED each year. The money funded for that loan comes from what source; what source pays off the loans from the previous year? Loans are taken in at interest, the more interest gained versus money in circulation. If there was a run on the banks, what is contained by law at all banks is what I meant by fictional 0s and 1s. The amount of fictional 1s and 0s and the legal amount of 0s and 1s as required by each bank are caused by interest on the loans etc...are not balanced for the real world, there would be a shortage.

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debt service only accounts for less than 20% of the government expenditures. Your figures don't match the reality, interest payments servicing the debt are around 400 billion US$ which would be approx. 4% of the total debt (the principal as you referred to it), which is far from being even close to the total amount the government owes and even further from your assertion that the interest is becoming greater than the principal.


Do you have a link to the M3 data from last year proving this?

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I think you made a typo, public assets are already nationalized.

Perhaps you don't realize that I put the words "can easily become" in that sentence for a reason?

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What do you mean by this? Shouldn't you pay a larger fraction of your income as it grows?

In theory that's what should be happening, but the reality isn't in the United States. This is why tax breaks are given to corporations come hell or high water.

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You are assuming that banks are going to incur in transaction costs and the risk of liquidity. That does not happen very often, and banks usually don't "buy" public goods as one of the main characteristics of public goods is the fact that they are provided by the government and not bought in an open market.


Excuse my French (no shit). This is why most banks have diversified into other currencies and derivative markets. No banks form or buy into a multinational corporation which does buy public property like: transportation, water, electric, energy, or communications etc...

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This latest bailout is another example of these practices at work.

When money printing and circulation are part of keeping the economy floating on a sea of derivatives, there are too many factors to name so I won't begin to start. I will state that its like baseball cards in circulation; the more rare a card the more its worth. Just as dollars, whereas the more dollars in circulation, the more inflated the currency.
Edited by mynameis, Oct 30 2008, 02:18 PM.
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FreeCriticalThinker

When I say that the thread is being derailed I don't mean it in a bad way. Now, as soon as we started discussing fiscal policy and the misconceptions you had with forward contracts and issue of lending and spending beyond one's mean, we did went of topic. Still I think the conversation has been interesting all the while.

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All these are behaviors exhibited by those with whom the FED banks operate. Taxes fund the debt run up by the FED each year.


First of all I should clarify that the Federal Reserve does not operate any banks, remember that it is a quasi-public and quasi-private institution and member banks are part of the quasi-private component.

Taxes do not fund the debt owned by member banks, in any case debt is funded by deposits from the open market. In the specific case a bailout the Federal Government makes a loan and takes ownership of certain assets, to take this idea and claim that taxes fund the debt owned by member banks is quite a leap.


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The money funded for that loan comes from what source; what source pays off the loans from the previous year?


Banks get money from various sources, the normal deposits and loans bank gets cash from financing activities (selling of financial instruments) and direct deposits. The loans from the previous year paid by their clients, just like when you go to pay your credit card every month.

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Loans are taken in at interest, the more interest gained versus money in circulation.


Yes, this is the only logical thing to do. Why would I lend you any money when I could invest it in some productive activity and get a return on it? You would have to offer a higher return rate or compensate some of it with significant lesser risk. The concept of pricing the transfer of money between time periods is not particular to modern banking so it even if you do away with the fed people still wouldn't lend you a single dime at a 0 interest rate ... unless you buy something from them, but that's another story.

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If there was a run on the banks, what is contained by law at all banks is what I meant by fictional 0s and 1s. The amount of fictional 1s and 0s and the legal amount of 0s and 1s as required by each bank are caused by interest on the loans


You are a bit confused in this issue. First, yes banks are required to keep a percentage of its deposit by law, but this money is far from fictional. Actually, in the case of a run this is the only cash the banks would have on hand before they scramble for cash. The requirement is not caused by the interest on the loans, rather it is a ratio of the total deposits held by a bank.

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Do you have a link to the M3 data from last year proving this?


This information is not contained in monetary aggregates, this info has more to do with fiscal policy than monetary policy. You would find this info in the fiscal year reports presented by the government. This document here: http://www.whitehouse.gov/omb/budget/fy2007/pdf/07msr.pdf can give you an estimate of the amounts. I used a slightly increased number (if you see the actual net interest row in the table in page 41 you'll see it's actually 264 billion us$) for the calculations, but the that illustrates my point even further as it represents a smaller share of the government expenditures.

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In theory that's what should be happening, but the reality isn't in the United States. This is why tax breaks are given to corporations come hell or high water.


You can't compare corporations and individuals if you do wish to go there I can tell you right now it is a very unfair comparison. Now, between individuals those with a higher income, in reality, do pay a higher share of their income in taxes.

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This is why most banks have diversified into other currencies and derivative markets.


Those are long/medium term investment and are not liquid enough to be able to be used to buy any kind of goods and services without penalties or transaction costs, far from making a bargain banks would be at a loss if they did this.

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No banks form or buy into a multinational corporation which does buy public property like: transportation, water, electric, energy, or communications etc...


Public transportation and utilities are usually monopolized and subsidized by the government, as soon as a bank buys any of these firms then it becomes private. Energy stopped being a public good a long time ago, if it ever was.

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When money printing and circulation are part of keeping the economy floating on a sea of derivatives, there are too many factors to name so I won't begin to start.


Assuming that this is in fact taking place in the real world. Can you post real world data that support this assertion? According to the bureau of printing and engraving a large part of the bills they print are used to replace those already in circulation, not to keep the economy afloat.
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mynameis
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I don't see what you see in this pdf.
http://www.whitehouse.gov/omb/budget/fy2007/pdf/07msr.pdf

On the rest it's clear you don't see what I see either and I don't have time to find the information. Which is locatable, but I'd rather leave it as you have your opinion and haven't show proof as I haven't. I asked for one simple thing, show us the M3 data for 2007, you can't. So have a nice whatever. One final note is that the WH documents are not acceptable due to conflict of interest in how the operation works. You should have posted a link from a college or school of economics.

Dated yet still valid.

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As an illustration of what is meant by this, let us take the supposed case of a general all-round cheapening in the processes of production, due to increased knowledge and greater skill in the invention and use of labour-saving appliances. If the amount of money remains the same and the same economies in its use are in force, we shall get an all-round reduction in prices; in other words, the value or purchasing power of money will rise.

Look at the other scale of the balance. Suppose in this case that the cost of production of vendible commodities remains the same, but that the amount of money in circulation is less, due, let us say, to the exhaustion of some of the principal gold fields; prices will be affected in the same way. Money, obeying the general law of supply and demand, will rise in value owing to the reduction in supply.

It is the action of this double set of causes which renders so difficult the problem of keeping the value of money stable. As we saw in the last chapter, stability is the essential quality for our standard of value, and any changes are an evil to be avoided. Rising prices may give a stimulus to the producing classes for a time, although this stimulus is partly at the expense of the consuming classes, but prices cannot continually rise, and the inevitable reaction is one of the chief causes of those periods of commercial depression and stagnation which characterise our modern industrialism.

If we could artificially regulate the supply and economy of money we should not have attained our object, because the value of money would still be open to the influence of the other set of causes.

We will, however, for the present confine our attention to the value of money as dependent on its supply and use. The general rule is, that this value depends on the quantity of money in circulation together with the economy in its use, or, in other words, the "rapidity of its circulation." The greater the quantity of money in circulation the less will be its value, and the higher will be the level of prices, and conversely.


In the same way the more work that each piece of money will do the less will be its value and the higher will be the level of prices. In John Stuart Mill's words (a), "the amount of goods and of transactions being the same, the value of money is inversely as its quantity multiplied by what is called the rapidity of circulation."

But we shall do well to remember that the quantity of money does not depend absolutely upon the supplies of the precious metals from the mines. By far the larger proportion of the money of most industrial nations consists of paper money, obligations to pay gold or silver either on demand or at a fixed period. A very small proportion of these promises is ever liquidated in coin. The supply of the precious metals is far too small to liquidate the obligations existing at any one moment, and most of them are cancelled by a transfer of indebtedness. This superstructure of credit is based upon the quantity of the precious metals in circulation, and its quantity is, roughly, proportionate to that of its basis; there is no exact proportion, however, and so the paper circulation possesses the useful attribute of "elasticity."

At certain periods, when trade is more than usually prosperous and transactions are multiplied, the work which the money of a country has to perform is correspondingly greater, and a demand for an increase in the quantity of the currency often occurs; this demand is met by an increase in the superstructure of credit, which, in a proper system, expands and contracts automatically. This power of expansion is called "elasticity," and is, up to a certain point, beneficial, since it tends to steady prices. It will be seen that this power of automatic expansion is a modification of the general rule that, other things being equal, the value of money depends upon the quantity in circulation, for a rise in the value of money may, under certain conditions, result in an increase in that quantity.

(a) Mill: Political Economy, bk. iii., chap. 8, § 3.]


http://chestofbooks.com/finance/banking/Banking-And-Currency/Chapter-II-The-Value-Of-Money.html
Edited by mynameis, Oct 30 2008, 08:34 PM.
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FreeCriticalThinker

Just scroll down to page 40 and look at the table named "Outlays by function". Remember that you asked for the information to prove the ratio I calculated to demonstrate that your idea about the interest growing to a level beyond the principal or that people are taxed to pay for this interest was not accurate.

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but I'd rather leave it as you have your opinion and haven't show proof as I haven't.


Actually I've shown more than just an opinion, I've done the calculations to backup my posts and sourced the necessary numbers.

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I asked for one simple thing, show us the M3 data for 2007, you can't.


You asked for m3 data to proof something that is not contained in that monetary aggregate, that is why I corrected your misconception and redirected you to the correct source.

Still, why do you want me to calculate m3 for you?

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One final note is that the WH documents are not acceptable due to conflict of interest in how the operation works. You should have posted a link from a college or school of economics.


There is no conflict of interests with those documents, they are presented to Congress every year and are audited by the Government Accountability Office ... if there was a flaw in those documents we'd know by now.
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FreeCriticalThinker

You posted that quote after I finished posting my last post. Please, which of your points is supported by it? The information contained in it is pretty accurate yet it's only tangentially, at its best, related to the different points you've put forth.
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FreeCriticalThinker

After listening to Edward Griffin's speech I have to say that I'm surprised at the amount of intellectual dishonesty I've been exposed in the last hour I dedicated to listen to this. I would like to start with the basic premise behind his, let's call them assertions: The Federal Reserve was created to loan money to the government. He even makes it explicitly clear when he said:

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Plenty of money is loaned to the government but never enough. Congress needs more money than that. They say not to worry. They go further down the street to the Federal Reserve building. The Fed has been waiting for them, that’s one of the reasons it was created.


A brief look at the numbers tells us a complete different story. Please take a look at this document and go to page 232. There you'll find a table with the following data:

Total Gross Federal Debt: 8,950.7 Billion US$
At the end of 2007, the Federal Reserve Banks held $779.6 billion

A quick calculation paints a different story than the one Griffin is trying to sell: only 8.7% of the total federal debt is held by Federal Reserve Banks. If Griffin was right, we should expect a much higher share given the "fact" (according to Griffin that is) that one of the reason the fed was created is so that the government can borrow from them. Still, the government uses less this source for less than 9% of its total debt. How could this be when, again according to Griffin, the fed was created so the government can have access to any amount of money at any time? The only answer is: Griffin is not telling the truth.

And this is just the start, but first I would like to know what do you guys think about this particular bit.
Edited by FreeCriticalThinker, Nov 4 2008, 12:17 PM.
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FreeCriticalThinker

So no one is going to comment about this? Not even the video poster or JFK who so strongly suggested and insisted that I watched this pack of lies?
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gata.org

FreeCriticalThinker
Nov 4 2008, 12:14 PM
A quick calculation paints a different story than the one Griffin is trying to sell: only 8.7% of the total federal debt is held by Federal Reserve Banks. If Griffin was right, we should expect a much higher share given the "fact" (according to Griffin that is) that one of the reason the fed was created is so that the government can borrow from them. Still, the government uses less this source for less than 9% of its total debt. How could this be when, again according to Griffin, the fed was created so the government can have access to any amount of money at any time? The only answer is: Griffin is not telling the truth.
You should watch "money as debt" or "zeitgeist addendum", they explain in quite easy to understand terms how the central banking scam works, the government creates debt paper which the fed buys using money it creates out of thin air, or computers. This creates a situation where the government is essentially owned by the central bank.

This constant injection of new paper money into the economy is why prices constantly go up, rather than decreasing as you would expect with increasing abundance.

Another aspect of the scam is the crises which are deliberately orchestrated every 20 years or so, which get steadily worse (i.e. the crisis is at the moment is much worse than the one we had 20 years ago). The central bank acts as "lender of last resort", it essentially authorises itself to give the failed banks money to "recapitalise". Again this is freshly printed cash which goes to enable this (causing more inflation). You and me pay the price of banker "stupidity" with higher milk prices at the supermarket.

Your point about the fed not holding much of the debt, well I've heard a lot of it is held by foreign (privately owned) central banks, the largest holder being china of course.

The central bank problem isn't unique to the USA by any means, almost every country has one.
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JFK
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FreeCriticalThinker
Nov 8 2008, 02:52 AM
So no one is going to comment about this? Not even the video poster or JFK who so strongly suggested and insisted that I watched this pack of lies?
Well obviously you didn't.

Because it was an audio presentation. :roll:

I have yet to see you prove any of that presentation false.

And frankly with your attitude, I could care less. :|
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esopxe
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FreeCriticalThinker
Nov 8 2008, 02:52 AM
So no one is going to comment about this? Not even the video poster or JFK who so strongly suggested and insisted that I watched this pack of lies?
I knew from your first response

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Thanks man, but is it ok with you if we keep the academic level of this discussion as high as possible. That means that youtube and out of context quote don't represent a primary/first reference or argument. This is because it becomes a bit tedious to go through an hour of video just find a few relevant pieces of information that merit any sort of discussion.

If there is a specific part of that video that illustrates your point, please bring up. Thanks.

that the last thing that you were actually after was learning about the FED. I'm sure your mind was already made up before you even came to this forum. Some people only need a little bit of evidence to know something is seriously wrong with the FED and some people can never be shown enough. Keep on truckin.

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