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Does the Federal Reserve Keep the Motherload?


Uccmal
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I have looked far and wide to try and determine how this process works.

 

US gov't issues treasuries and federal reserve buys them up.  With what? 

 

Obviously, when the Fed buys up treasuries they cant be issuing debt so what is the source of this cash and how deep does it go? 

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They are essentially printing money. They control the printing press. (probably digital now but same principle) Theoretically, no limit, could buy everything. Put the guys in the basement on double and triple shifts printing the green. Where does that take inflation.

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http://www.federalreserve.gov/releases/h41/Current/

 

There you go!

 

What most people consider money is actually a noninterest bearing IOU from the Federal Reserve. That is why it is called a note.  This is also why it is Constitutional (the whole thing about Congress being in control of the money weights and such). Legal tender laws basically make it only a debt replacement for other debt.

 

So the Federal Reserve prints/creates these notes by buying assets.

 

Another thing to remember.... The Federal Reserve is defacto owned by the U.S. government.  I hear people on the street thinking it is some private bank which says a lot for our education system.

 

Federal Reserve has issued member banks a preferred stock that yields 6%(I think), but the real profits go back to the U.S. Treasury. Figure in the leadership of the bank is appointed by the President and approved by Congress, then you have profits and control belonging to the U.S. Government.  Just think they get paid interest on the U.S. government debt to cover the bills, but any extra goes back to the taxpayers.

 

What is the IV of a piece of paper?  Not much

What is the IV of a non interest bearing non maturing note?  zero

 

The IV comes from legal tender status stating it is good for all debts public and private, since the U.S. government is a better credit risk than anyone else.  Yet,  the chance the U.S. government will ever make good on all these debts is near zero.  Printing is basically just making the debt non interest bearing (which causes inflation because no one wants to hold non interest bearing notes...they want goods or interest/profit earning assets)

 

 

 

-SFWUSC

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