From 1931


I have to admit I've never fully comprehended monetary policy. Is this how it works?

NEXT: Perle v. Hersh

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  1. That is how it works, except instead of actual dollar bills it is deposits in a checking account. The bank does not need to have received an additional $1000 to give someone a new $1000 line of credit. No dollars were printed, but the borrower just got $1000 out of thin air. Under our current banking system, the banks can do that 10 times for each dollar they actually possess.

    When the Fed buys US treasuries, it doesn’t pay cash. It increases the seller’s account. If a bank, for each $1000 of treasuries sold to the Fed, the bank now can loan out (create new accounts) $10,000. An extra $9000 just appeared in the economy out of thin air, or by fiat of the government.

    The only difference from the cartoon is that the Fed uses more recondite, but no more meanginful, verbiage than “phooey! phooey! phooey!”.

  2. Ah, but those credit $$$ are actually magicly borrowed from the future, where they really do exist. Obviously, our future selves don’t need them as much as our present selves, and thus don’t mind loaning them to us, via the bank. Of course, should the bank doubt the willingness or the ability of our future self to loan the money to our present self based on the actions of our past self, then the future money will stay in the future, where it may or may not exist.

    See, it all makes perfect sense, and proves that time travel is possible!

  3. That’s how its done but it doesn’t work any better than theft or taxes work. In fact, its not much different from theft or taxes. Its just not as honest.

    I have had “conversations” with a self identified (inflated?) Economist who has a very Famous last name. He thinks such fractional reserve banking is just fine because money is created at a very low cost. After all, money does not have to be real, we only need to think its real. He thought the only challenge was to avoid expanding the money supply so fast that the producers of real value discover its not real and stop accepting it. In my way of thinking that’s like theft being OK if the thief does not get caught.

  4. I know that this is a coincidence for historical reasons, but I find it funny nonetheless. A friend of mine has some silver certificates from the 1950’s. They look like ordinary dollar bills but none of them say ‘In God we Trust’. Modern money, which is backed by nothing, has ‘In God We Trust’ emblazened upon it. Perhaps they’re praying that no one notices it isn’t worth anything. Or, to put it another way, you don’t need to trust in God when you can trust in the market for precious metals.

    Separation of church and state is a good idea but stops short – how about separation of money and state?

  5. Hmmmm. Looks like it works for me….

  6. That’s one F@#%ed up link. Access forbidden.

  7. I wish I were a dollar,
    That everywhere I go,
    The person who possessed me,
    Would see, and feel, and know,
    That with me in his pocket,
    He’d have 100 pence,
    And not in guvment be trusting,
    For twenty-seven cents.

  8. Try this url, then, and just ignore the text; I was linking to the cartoon:

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